Vanke, a major Chinese real estate company, has averted an immediate default crisis by deciding to extend the repayment obligation for promissory notes worth over 700 billion won by 30 trading days.
According to China’s National Business Daily and other sources on December 26 (local time), Vanke’s bondholders approved, with 92.11% in favor, a proposal to extend the repayment period for 3.7 billion yuan (approximately 763.3 billion won) worth of yuan-denominated notes maturing on the 28th, from the current 5 trading days to 30 trading days. However, five other proposals, including Vanke’s plan to extend the repayment by one year, were rejected, as they failed to gain more than 90% approval.
This decision is similar to the one made by bondholders regarding 2 billion yuan (about 412.6 billion won) of bonds that matured on the 15th. Bloomberg News assessed that this measure allows Vanke to avoid a default crisis once again and secures time to arrange solutions such as debt restructuring.
However, Vanke’s interest-bearing debt amounts to 364.3 billion yuan (about 75.1 trillion won), and the company must repay 13.4 billion yuan (about 2.7 trillion won) by the end of June next year. Some bonds include a “cross-default clause,” which means a default on one bond could trigger defaults on others. Notably, about 45% of Vanke’s interest-bearing debt is unsecured.
Vanke is a large corporation with assets of about 160 billion dollars (approximately 231 trillion won) and 125,000 employees. If it undergoes restructuring, it could become the largest in China’s history. On December 23, credit rating agency S&P Global Ratings downgraded Vanke’s long-term credit rating to “selective default,” effectively viewing the extension of the repayment period as a painful debt restructuring. Fitch also downgraded its rating from “C” to “restricted default” on December 24.
China’s real estate market has experienced a downturn in recent years, with major companies such as Evergrande and Country Garden falling into default one after another. Vanke, whose largest shareholder is the state-owned Shenzhen Metro, is among the few large construction companies to have survived, but its financial situation has deteriorated significantly over the past two years. Liquidity pressures have also increased after Shenzhen Metro hinted at stricter funding support conditions last month.
Meanwhile, to mitigate the real estate downturn, authorities in Beijing have recently eased home purchase requirements and adjusted regulations on mortgage interest rates as part of measures to revitalize the housing market.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
