China’s Vanke Unveils New Bond Extension Plan With Extra Interest to Avoid Default

(Yicai) Dec. 17 -- China Vanke has released a more attractive plan to extend a CNY2 billion (USD280 million) medium-term note which will include additional interest payments, after bondholders rejected all three previous extension proposals, as the struggling Chinese property giant moves to stave off an imminent default.The new plan would extend repayment by 12 months, with the full principal to be paid at maturity, according to an announcement made today on the Shanghai Clearing House website by Shanghai Pudong Development Bank, the bond’s community manager.The bond, which has been given a grace period up to Dec. 22, will continue to accrue interest at an annual rate of 3 percent which will be paid together with the principal at maturity, the announcement said. And the interest of CNY60 million (USD8.5 million) due on the bond will be paid until the end of the grace period on Dec. 22.Vanke also pledged to provide additional credit support for the extension, though no details were given.Bondholders will meet tomorrow to discuss the extension plan and put forward their own proposals at the second creditors’ meeting scheduled for tomorrow. Voting will close at 10 a.m. on Dec. 22.In addition to the extension proposal, the meeting will also discuss Vanke’s request to lengthen the bond’s grace period from the original five working days to 30 trading days, which would take it to Jan. 28, 2026.The proposal to extend the grace period is aimed at buying time for Shenzhen-based Vanke and its creditors to reach a compromise, an industry insider said. If it is passed, both sides would have more room to negotiate and avoid an immediate default.Vanke’s original proposal, which involved extending both principal and interest by one year without any additional credit support, failed to receive a single vote in favor during the first creditors’ meeting. Two alternative plans received support rates of 83.4 percent and 18.95 percent, respectively, both below the 90 percent approval threshold.Heightened ConcernsVanke is also seeking to extend another CNY3.7 billion (USD525.1 million) note due on Dec. 28. The firm will hold a creditors’ meeting on Dec. 22 to negotiate and vote on extension details for that bond as well.The failure to secure an extension for the first bond has heightened market concerns over Vanke’s willingness and ability to repay, putting additional pressure on negotiations for the next bond, another industry insider told Yicai.Holders of that note may demand higher risk compensation or stricter credit-enhancement measures from Vanke, leading bondholders to adopt a more cautious or even aggressive stance, the person added.As of Nov. 30, Vanke had repaid CNY19.5 billion (USD2.7 billion) in Chinese public bonds this year. It has 13 outstanding corporate bonds and medium-term notes in the home market, with a combined balance of CNY20.3 billion (USD2.8 billion).The builder has another CNY10 billion in Chinese yuan bonds maturing between April and July next year.Vanke’s share price showed little reaction today, staying near recent lows. The stock in Shenzhen [SHE:000002] closed down 0.2 percent at CNY4.96 (USD0.70) and in Hong Kong [HKG:2202] it closed up 0.8 percent at HKD3.62 (USD0.47).Editors: Tang Shihua, Kim Taylor