A team of executives from one of China’s biggest public transport operators has a new mission: propping up the latest vulnerable developer in the country’s long-running property crisis.
The builder, Vanke, made six appointments this month from state-run Shenzhen Metro, while executives were also parachuted in from a government-run asset management arm and a credit guarantee firm in the southern Chinese city, according to an internal memo circulated online.
The move indicates a more active role for local authorities in the fate of a company that has become the latest bellwether of China’s property downturn.
Across the country, it has also raised hopes of greater state intervention in an industry slowdown well into its fourth year.
“Policymakers don’t want Vanke to fall because that’s going to really damage sentiment,” said Larry Hu, chief China economist at Macquarie, adding that the new phrase in housing policy circles was “stop the decline”. “If Vanke goes bankrupt, the housing market will not ‘stop the decline’.”
After letting dozens of private developers default since Evergrande’s collapse in 2021, authorities in Beijing are now under greater pressure to restore faith in a sector that for decades underpinned economic growth.
Shenzhen-based Vanke, one of the first private companies to win a land auction in the late 1980s, was initially thought to be insulated from the sector’s cash crunch. The city’s subway operator has owned an approximately 30 per cent stake in the company since 2017, and in 2022, Vanke was listed among several developers deemed of higher quality and eligible for credit lines from state banks.
But its plummeting home sales show the downturn is persisting and appears resistant to Beijing’s policy responses. Last month, Shenzhen Metro parachuted in a new chair and chief executive after swirling rumours over the whereabouts of its former leader Zhu Jiusheng and a warning of a $6.2bn loss for 2024.
Any default in a company so closely linked to a local government would be another blow to economic confidence within and outside China. According to data provider Debtwire, 41 Chinese developers are still in active restructuring or liquidation proceedings in Hong Kong, where many of them listed during a multi-decade boom in housing.
In addition to the leadership appointments, the developer received a Rmb2.8bn ($380mn) loan from Shenzhen Metro. But the amount is dwarfed by more than Rmb50bn in debt due this year, according to financial data provider Wind, with payments on a closely watched offshore bond due in May.
Leonard Law, a credit analyst at Lucror Analytics, pointed to a “heightened likelihood that the Shenzhen government would help the company garner sufficient financial resources to avoid a default”.
The metro group is “unlikely to provide blank cheques to support Vanke”, he added, but it could “purchase assets or provide loans to boost Vanke’s liquidity”.
The management overhaul appears to have helped allay concerns for now. Since mid-January, Vanke’s international bonds have recovered from distressed levels and now trade close to their par value.
Like many of its peers in recent years, the developer is trying to sell assets, including land, to generate cash. Vanke told the Financial Times it would go “all out to continue to raise funds” but did not mention its relationship with Shenzhen Metro or the local government.
In the absence of any direct bailout, Vanke would be at the mercy of a challenging market. While official data in December showed new home prices in 70 major cities stopped falling month on month for the first time in 18 months, they are still declining on an annual basis. Rating agency Fitch estimated last month the value of new home sales would drop by 15 per cent this year.
Deteriorating sales could affect Vanke’s ability to pay its bonds, signalling distress in the international markets months after Beijing unveiled measures designed to boost confidence, including support for share buybacks and cuts to mortgage rates.
Two people involved in restructurings in Hong Kong painted a pessimistic picture of the mainland market. “The reality, I think, is that these companies . . . need significant breathing space,” said one of the people. “The onshore business model is broken.”
Developers keen to offer structured notes in exchange for bonds have tried to model future cash flows to investors, who often have little faith in the projections, said the second person. Many investors simply want a deal that would give them a security they could sell in order to recoup some cash, the person added.
A Chinese creditor in Vanke said the Shenzhen Metro appointments were a source of confidence that this year’s onshore and offshore debt would be fully repaid. But the outlook is less clear for offshore bonds due in 2027 and 2029. “There’s likely to be an extension,” she said.
One potential source of official funding is a government initiative encouraging state-owned enterprises to buy unsold properties and use them for social housing. Beijing has allowed such purchases to be financed with government bonds.
In a downgrade to Vanke’s credit rating this month, rating agency Moody’s said volatile market conditions had led to “lower profit margins on property sales”, pointing to a 35 per cent decline in the company’s sales in 2024 to Rmb246bn.
Meanwhile, the likelihood of state support was viewed with scepticism. The new appointments, Moody’s said, “cannot fully mitigate China Vanke’s elevated refinancing risks and deteriorating financial performance over the next six to 12 months”.
For Hu, homebuyers “generally expect the slowdown to continue”.
“For housing to stabilise further,” he added, “it has to be the government [that] step[s] in” and “create[s] housing demand”.
Additional reporting by Wang Xueqiao in Shanghai and data visualisation by Haohsiang Ko in Hong Kong
