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Leading Chinese property developer Vanke has forecast a $6.2bn annual loss and announced the sudden resignation of its top leadership, reigniting concerns over funding and confidence across the country’s economically critical real estate sector.
The developer, partly owned by local authorities in Shenzhen, is the latest focal point of a cash crunch that began with the collapse of peer Evergrande in 2021 and has since engulfed a host of other developers including Country Garden.
After weeks of swirling concerns over the health of Vanke, the company said in a filing to the Hong Kong stock exchange on Monday that chair Yu Liang had resigned for “work adjustment reasons”. It said chief executive Zhu Jiusheng had departed for “health reasons”.
The “sudden and simultaneous” resignations were “unprecedented in recent memory” for a big player such as Vanke, said Foreky Wong, founding partner at Hong Kong advisory company Fortune Ark Restructuring.
Vanke said in a separate filing that it expected to have made a loss of Rmb45bn ($6.2bn) in 2024, compared with profits of Rmb12bn a year earlier, highlighting a continued decline in sales of new homes in China. The company said it was experiencing “temporary liquidity difficulties” due to the loss.
Xin Jie, head of Shenzhen Metro, which owns about a third of Vanke, will become the company’s new chair. Vanke is now set to become the latest test of authorities’ willingness to support individual developers, which typically borrow heavily to finance their activities. Vanke has Rmb36bn of capital market debt coming due this year.
Given the company’s well-known status in China, its struggles also pose a fresh challenge to homebuyer confidence, which remains weak despite a barrage of recent efforts from policymakers.
Rather than carrying out individual bailouts, Beijing has, since Evergrande’s default in 2021, prioritised completing unfinished projects, reducing borrowing costs for homeowners and encouraging banks and other lenders to refinance the sector.
Policymakers unveiled vast credit lines from state-owned banks in late 2022 and, in May, announced a new policy of encouraging state-owned enterprises to buy unsold housing. However, overall investment and sales have continued to decline, weighing on China’s economic momentum.
Zerlina Zeng, head of Asia credit strategy at CreditSights, said the key question was how much contagion risk Vanke’s plight would create, adding that the central and local governments might not be expecting “so much of a systemic impact” from a restructuring.
“If the market thinks otherwise and we see a funding freeze . . . and that leads to banks becoming even less willing to extend money to property, even at the project level, then that would [mean] big trouble for the Chinese government,” she said.
The resignations at Vanke come after a period of mounting concern over its liquidity, echoing the experience of other developers such as Country Garden in 2023. Leading rating agencies had downgraded its debt in recent weeks.
Fitch, which downgraded its debt to B minus last week, pointing to a “deterioration in Vanke’s sales and cash generation”, saying it was now reliant on new bank borrowing and asset disposals to repay its looming debts.
Zeng said the Shenzhen government had over the past year “not provided much liquidity and financial support to Vanke”, and that the cash required was “not something that a local government, even a wealthy one, would be able to [provide]”.
https://www.ft.com/content/9fe1d579-02ab-43e4-a21b-461fbdd47d97
