Vanke on Life Support... Bank Loan Interest Payments Deferred Until September

Agreement Reached with Banks Amid Default Concerns

Wanker office located in Beijing, China. Photo by Reuters and Yonhap News

Reuters reported on January 7 (local time) that Vanke, a major Chinese real estate company facing a 'default crisis,' has reached an agreement with banks to defer loan interest payments until September.

According to two sources who requested anonymity, lending institutions including Bank of China have agreed to allow Vanke to switch from quarterly to annual interest payments on existing loans, and to extend the due dates for interest payments accruing over the next several months to September.

Concerns about default arose last month when Vanke failed to pay the quarterly interest due. With major real estate firms such as Evergrande and Country Garden having recently declared bankruptcy, market doubts have intensified even for Vanke, a state-owned construction company previously considered relatively 'sound.'

One source explained that the agreement was coordinated by the State-owned Assets Supervision and Administration Commission (SASAC) under the Shenzhen Municipal People's Government. However, Vanke, Bank of China, and Shenzhen authorities did not respond to Reuters' requests for comment regarding this matter.

Although Vanke has averted an immediate default crisis, more than 13 billion yuan (approximately 2.6941 trillion won) of its bonds are set to mature in the first half of this year alone. According to its financial report, as of the end of June last year, Vanke held 264 billion yuan (approximately 54.8087 trillion won) in bank loans. Of this, 166 billion yuan (approximately 34.4 trillion won) is not due for more than a year.

Global investment bank JP Morgan published a report in November last year stating that, along with state-owned banks such as Bank of China and Industrial and Commercial Bank of China (ICBC), China Minsheng Bank and Ping An Bank have a relatively high exposure to loans and investments in Vanke. The report estimated that Vanke's bank loans account for 1.9% of all developer loans in China and 0.1% of all bank loans. It also projected that if Vanke were to default, the performance of China's major banks could deteriorate.

The South China Morning Post, citing a report by Barclays UK, observed that in the worst-case scenario, overseas bond investors in Vanke could see their principal recovery rate drop to as low as 0.9%, effectively resulting in a total loss.