'Investment Unqualified' Chinese Wanker Stock Price Soars Instead... "Support Expectations"

Shares of Vanke, China's second-largest real estate company, surged after Moody's downgraded its credit rating to 'junk'. The market's expectation that the company will be able to smoothly raise funds through government policy support amid debt repayment pressure was reflected in the stock price movement.

On the 12th, Vanke's shares listed on the Shenzhen Stock Exchange closed sharply up 5.71% at 10 yuan (about 1,800 won) compared to the previous day. This marked a strong performance for two consecutive trading days following a 3.05% rise the day before. However, the stock started the session on the 13th with a decline of around 1%.

[Image source=Reuters Yonhap News]

Since early this month, rumors circulated in the market that Vanke intended to delay repayment of some maturing bonds, which negatively affected its corporate bonds and stock price. However, local media assessed that the stock price surged as a positive factor when Vanke announced on the 11th that it had deposited approximately $650 million (about 852.4 billion won) for the repayment of maturing dollar bonds into a designated bank account.

On the 12th, when Vanke's stock price rose more than 5%, Moody's withdrew its investment-grade rating of Baa3 and assigned a non-investment-grade rating of Ba1. The previous Baa3 was the lowest investment-grade rating by Moody's, and Ba1 and below are considered non-investment grade. Moody's is also considering further downgrades. Kaven Chang, Senior Vice President at Moody's, explained, "The downgrade reflects expectations that credit metrics, financial flexibility, and liquidity buffers will weaken over the next 12 to 18 months." Moody's also pointed out increasing uncertainty regarding Vanke's access to funding amid a sharp decline in sales. However, Vanke rebutted the downgrade, stating that "operational fundamentals are normal" and "financial channels such as refinancing are functioning normally."

Vanke is reportedly discussing debt swaps with banks to prevent default due to liquidity shortages. Bloomberg reported on the 12th (local time), citing sources, that major creditor banks are considering converting bonds worth hundreds of billions of yuan into secured debt. The sources explained that talks coordinated by China's financial regulatory authorities and the Shenzhen local government are currently underway. However, Vanke did not respond to requests for confirmation regarding this matter.

According to Wind data, as of the 4th, Vanke has a total of 75 outstanding domestic and overseas bonds with a balance of 87.2 billion yuan (about 15.9 trillion won). Among these, 47 bonds (approximately 32.6 billion yuan) will mature within one year. If the maturity is brought forward to the first half of this year, a total of 16 bonds will mature, amounting to about 15 billion yuan.

The market's focus is on when and to what extent Chinese authorities will intervene to assist real estate companies. Vanke is effectively considered a state-owned enterprise as Shenzhen Metro, under the supervision of the Guangdong Province Shenzhen Municipal State-owned Assets Supervision and Administration Commission, holds a 33% stake. However, Industrial and Commercial Bank of China and China Construction Bank are reportedly yet to approve a syndicated loan of 4.5 billion Hong Kong dollars (about 754.3 billion won) to Vanke. The two banks are said to require sufficient collateral or other forms of credit enhancement from Vanke to support the new loan before granting approval.