Chinese banks are reportedly rushing to assist one of the nation’s largest property developers after its credit rating was downgraded to “junk” status by Moody’s on Monday.
Beijing is striving to restore confidence in the struggling real estate industry, working fervently to prevent China Vanke from facing a fate similar to Evergrande and Country Garden, both of which defaulted on their debts.
State media disclosed that 12 major banks, including the six largest state-owned lenders, are in discussions to provide a syndicated loan for Vanke valued at up to 80 billion yuan ($11.2 billion) to help the company meet imminent repayment deadlines.
The provision of the loan remains uncertain, with state media outlet Cailianshe reporting that an unnamed source close to the potential deal stated so.
Additionally, several insurance companies have reportedly dispatched teams to Vanke’s headquarters for further debt negotiations in a bid to avoid a default.
Vanke, established 40 years ago and ranked as the country’s second-largest developer by sales last year, has suffered from dwindling demand for apartments and declining home prices.
Following reports of potential new financing, Vanke’s stock witnessed a surge in both Hong Kong and Shenzhen markets.
However, despite these gains, the stocks remain in negative territory for the year thus far.
Moody’s recent downgrade of Vanke’s rating to Ba1, commonly referred to as a junk rating, underscores concerns about the company’s weakened credit metrics, financial flexibility, and liquidity buffer amid declining contracted sales and uncertainties surrounding funding accessibility in China’s prolonged property market downturn.
While international ratings agencies S&P and Fitch have maintained Vanke’s ratings at investment grade, Moody’s move reflects mounting apprehensions regarding adverse market conditions affecting even relatively sound companies backed by the state.
Vanke’s contracted sales dipped by 10% in 2023 to 376.12 billion yuan ($52.4 billion), with a further 32% decline noted in January 2024.
The company has witnessed a notable decline in its stock value over recent months, down nearly 30% in Hong Kong-listed shares since November, and 9% year-to-date.
Efforts by Chinese authorities to address the real estate crisis, including stimulus measures, have thus far failed to reinvigorate the sector.
Property sales and investment have continued to decline for the second consecutive year, undermining confidence among homebuyers, businesses, and investors, thereby posing a threat to the broader economy.
Ni Hong, China’s housing minister, emphasized during the National People’s Congress the support for the “reasonable” financing needs of real estate developers.
However, he also reiterated that developers facing severe insolvency would not be bailed out, signaling a more stringent approach towards troubled companies.
Nomura analysts viewed this stance negatively, noting the government’s prioritization of ensuring property project delivery over safeguarding developers’ businesses.
Source-CNN
