China Vanke units guarantee US$1.1 billion in loans for troubled developer after Fitch Ratings downgrade
- Shenzhen Yili Real Estate Development and Shenzhen Zhongke Wanxin Industrial guarantee the loans, China Vanke said in an exchange filing
- Fitch Ratings on Thursday downgraded the Shenzhen-based developer’s long-term foreign- and local-currency issuer default ratings to “BB-” from “BB+”
Shenzhen Yili Real Estate Development provided a guarantee for a 4.49 billion yuan loan, while Shenzhen Zhongke Wanxin Industrial offered a guarantee for a 3.29 billion yuan borrowing, Vanke said in a Friday stock exchange filing.
The loan arrangement came after Fitch Ratings on Thursday downgraded the Shenzhen-based developer’s long-term foreign- and local-currency issuer default ratings to “BB-” from “BB+” and said the company’s outlook is negative. A negative outlook means there is a greater than even chance for a ratings downgrade over a one- to two-year horizon.
“The downgrade reflects a reduction in China Vanke’s liquidity buffer following the weaker-than-expected sales performance in the year-to-date,” Fitch analysts said.
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“The sustained sales deterioration has affected China Vanke’s nonbank funding access, and the company will increasingly rely on its cash on hand, asset disposals and secured onshore bank financing to address its sizeable debt maturities in 2024 and 2025.”
Fitch’s liquidity concerns came after Vanke had obtained 20 billion yuan in syndicated loans from banks including China Merchants Bank using shares in its logistics unit VX Logistics as collateral, state-owned media reported.
“VX Logistics is one of Vanke key assets in the logistics segment, which owns more than 200 warehouses in China with total gross floor area of more than 10 million square metres,” wrote Raymond Cheng, managing director and head of China and Hong property at CGS International. “The book value of the units was more than 30 billion yuan.”
“There are uncertainties about the impact of these policies in stabilising industry sales,” Fitch analysts said, adding that Vanke’s total contracted sales in the first four months of 2024 fell 42 per cent year on year, which was “broadly in line with major developers’ performance”.
Contracted sales of the nation’s top 100 home builders extended a decline in April, slumping 44.9 per cent year on year and 12.9 per cent month on month to 312 billion yuan, data compiled by China Real Estate Information Corporation showed.
Partially owned by the Shenzhen Metro Group, Vanke has 23 billion yuan in capital market debt maturing in a year, against the 83 billion yuan of cash it had on hand as of the end of March this year.
CGS’s Cheng said Vanke could sell its stake of around 20 per cent in GLP, one of the world’s largest logistics companies, to help relieve its liquidity issues.
China’s new housing demand could drop to around 800 million sq m per year on average between 2024 and 2040, marking a 33 per cent decline from 2011 to 2020, Fitch analysts wrote in a May 19 report, attributing the dwindling demand to “adverse demographic shifts, slower urbanisation, and diminishing numbers and size of urban renewal projects”.
