China Vanke secures US$194 million loan from Industrial Bank in brief respite for troubled property developer

The purpose of the loan is to meet ‘operational needs’ as well as to repay Vanke’s loans and bonds, according to the filing
Earlier this month, Chinese regulators asked large banks to step up support for Vanke and asked insurers to defer its maturities, according to media reports

China property

Cheryl Arcibal

Published: 10:03am, 20 Mar 2024

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Heavily indebted China Vanke, one of China’s largest developers, said it has secured a long-term loan from a Chinese commercial bank, providing it some relief following its credit rating downgrade a week ago by Moody’s to junk status.

The Shenzhen-based developer said in a statement filed with the Hong Kong exchange late on Tuesday that it had obtained a 1.4 billion yuan (US$194 million) loan from Industrial Bank for 14 years, based on a 35 billion yuan guarantee authorised during a shareholders meeting held in June.

The loans were secured and guaranteed by units Shanghai Central District Real Estate and Shanghai Vanke Enterprise. Shanghai Central District is fully owned by Shanghai Vanke.

“The risks of this guarantee are controllable and there will be no harm to the interests of the company and shareholders,” state-backed developer Vanke said while adding the purpose of the loan was to meet “operational needs” as well as to repay the developer’s loans and bonds.

Customers are seen inside Vanke mall in Shanghai on March 15, 2024. Photo: AFP

Earlier this month, Chinese regulators reportedly asked large banks to step up support for Vanke and insurers to defer maturities for private debt after receiving requests from the developer for debt extensions.

These developments have somewhat calmed a market that has been rocked by defaults and following the liquidation order for China Evergrande, the world’s most indebted developer.

China Vanke pledges to repay offshore debts due soon amid liquidity concerns

Last week, Moody’s downgraded Vanke to Ba1 or junk from Baa3, the lowest investment grade rating, on concerns about the company’s liquidity and ability to repay its debts.

Moody’s is the first among the big three international rating agencies to cut the company’s debt to junk status. Ratings from S&P and Fitch Ratings continue to maintain an investment grade rating for Vanke.

Vanke dismissed the impact of the downgrade, saying its was “controllable” and that the company’s operations remained “normal”.

Vanke, China’ second largest developer by sales, has around 5.45 billion yuan in onshore notes due this year, plus more than US$2.3 billion in US dollar denominated bonds that mature over the next five years, according to data compiled by CGS International Securities Hong Kong.

Vanke avoided the first wave of defaults among Chinese developers starting in 2021 when Beijing’s “three red lines” policy that restricted borrowings in the highly leveraged sector, sparked a liquidity crisis.

A default by Vanke could heighten market concerns and further damage confidence in China’s real estate sector, after a court in late January ordered China Evergrande Group to be liquidated and with Country Garden Holdings facing similar pressures.

In December, Vanke was looking to sell its stake in luxury hotel chain Banyan Tree Holdings’ China units, which could raise an estimated 480 million yuan for the troubled developer, according to the Singapore-based company’s filing.