China Vanke’s paths to avoid default narrow after vote

China Vanke Co (萬科), China’s last major developer to have so far avoided default amid an unprecedented property crisis, has been left with little time to keep debt failure at bay after creditors spurned its proposal to push back a looming bond payment.Once China’s biggest homebuilder by sales, Vanke failed to obtain sufficient support for its plan to delay paying the 2 billion yuan (US$283.51 million) note due today, a filing to the National Association of Financial Market Institutional Investors showed late on Saturday.The proposal, along with two others on the ballot, would have allowed a one-year extension. All three fell short of the more than 90 percent support required for passage.That leaves Vanke in a situation that underscores the broader challenges China faces in extricating itself from a real-estate debt crisis now entering its fifth year. The slump has sparked record defaults and liquidations or restructurings at property giants such as Country Garden Holdings Co (碧桂園) and China Evergrande Group (恒大).Vanke must find money to pay the bond by the end of today or within a grace period of five business days, or come to some separate agreement to push back the deadlines. If the grace period passes with no payment and no other agreement, creditors could call default — once an unthinkable outcome. Vanke had long benefited from a perception held by many investors that authorities would help keep it afloat. That belief was based on the company’s largest shareholder being state-owned Shenzhen Metro Group Co (深鐵集團).Indeed, more than 30 billion yuan in shareholder loans from Shenzhen Metro provided a critical lifeline, helping the cash-strapped builder avoid defaults this year.However, the support came under scrutiny in the past few months after Shenzhen Metro signaled plans to tighten borrowing terms. That shift sparked a drop in Vanke’s securities to deeply distressed levels.A week ago, financial and state asset regulators from Shenzhen asked for bondholders’ understanding of Vanke’s current financial stress.“The voting results indicated that the regulatory guidance hadn’t changed anything, making it very difficult for Vanke to reach a consensus with investors,” said Yao Yu (姚煜), founder of credit research firm RatingDog Information Technology Co (瑞霆狗). “It is quite likely that Vanke will propose another motion to extend the five-business-day grace period to 30 business days, thus leaving room for all parties.”No creditors voted in favor of Vanke’s original plan to postpone its local bond, which was a 12-month delay on principal and interest due without any upfront cash payments or installments.The other two proposals, which were announced later and required the developer to add credit enhancements and make an interest payment on time, received backing from investors holding 83.4 percent and 18.95 percent of the bond’s outstanding amount respectively.Some market watchers, including Forest Capital Hong Kong Ltd (森林資本) cofounder Li Huan (李歡), have said that a full-scale debt restructuring is inevitable as extensions — even if Vanke could get them passed — would not address the underlying issues.