China Vanke vows to improve bond delay plan after failed vote

Residential buildings under construction at the China Vanke Co.Langshi Flower Language in Shanghai, China on Friday Friday, May 24, 2024.

Distressed developer China Vanke Co. said it would improve on plans to push back a looming bond payment after creditors rejected its initial proposal, raising the risk of default.

Vanke, once China’s biggest homebuilder by sales, also said that it would hold a noteholder meeting on Thursday to discuss next steps for its 2 billion yuan ($283 million) security, which matures Dec. 15.

Vanke failed to obtain sufficient support for its plan to delay paying the bond, a filing to the National Association of Financial Market Institutional Investors showed late Saturday. Its proposal, along with two others on the ballot, would have allowed a one-year extension. All three fell short of the more than 90% support required for passage.

Vanke’s Hong Kong-listed shares fell as much as 5.7% Monday morning. The company’s dollar bonds dropped at least 3.5 cents in light volume, traders said.

The failed vote underscores the challenges China’s property crisis still poses for developers. On Monday, China’s National Bureau of Statistics released data showing that new-home prices in 70 cities dropped 0.39% in November from the previous month, when they saw their biggest decline in a year. The readings highlight the persistence of the yearslong downturn, and how it has become a hurdle to economic growth.

The slump has sparked record defaults and liquidations or restructurings at property giants such as Country Garden Holdings Co. and China Evergrande Group. Policymakers pledged recently to intensify efforts to stabilize the housing market, but stopped short of measures some economists think are needed to revive the sector that’s crucial to the broader economy.

“The voting outcome suggests that, despite Vanke’s bondholder base being dominated by large banks, investors were broadly dissatisfied — and in some cases clearly resistant — to the extension proposal,” said Li Kai, founder of Beijing Shengao Fund Management Co.

Vanke must now find money to pay the bond by the end of Monday or within a grace period of five business days, or come to some separate agreement to push back the deadlines. If the grace period passes with no payment and no other agreement, creditors could call default — once an unthinkable outcome.

The immediate concern if there were to be a default ahead “is what is the fixed income market reaction,” Charlene Chu, a senior analyst at Autonomous Research, told Bloomberg TV.

Vanke, China’s last major developer to have so far avoided default, had long benefitted from a perception held by many investors that authorities would help keep it afloat. That belief stemmed from the fact that the company’s largest shareholder is state-owned Shenzhen Metro Group Co.

More than 30 billion yuan in shareholder loans from Shenzhen Metro provided a critical lifeline, helping the cash-strapped builder avoid defaults this year. But the support came under scrutiny in recent months after Shenzhen Metro signaled plans to tighten borrowing terms. That shift sparked a drop in Vanke’s securities to deeply distressed levels.