In a rare move, the Chinese government has urged major banks to bolster financial assistance to the state-backed property developer China Vanke. Sources reveal that the State Council, China’s cabinet, is spearheading this intervention to aid the beleaguered property firm. Financial institutions have been directed to expedite their support efforts, as disclosed by one source familiar with the situation. Despite attempts to seek comments from the National Administration of Financial Regulation and the State Council Information Office, responsible for media inquiries, no responses were received, according to another source.
Investors have dumped shares and bonds of Vanke over the past weeks due to liquidity concerns. Reports that were once seen as financially sound show that the developer has sought debt maturity extensions with some insurers, compounding investor jitters.
Vanke’s problems come amid a series of defaults by major developers, including market leader China Evergrande Group and Country Garden. Experts caution that default worries have dampened market confidence in China’s property sector and could ripple to the broader economy. Any repayment troubles at Vanke, one of the few remaining Chinese developers with investment-grade credit ratings, could further dampen investor confidence.
The company’s financial woes stem from government restrictions on borrowing, which have pushed up costs and crimped profit margins. The restrictions have also curbed demand as they limit the number of mortgage loans, driving down real estate prices. In the face of the new financing constraints, the company has reduced spending on construction and bought less land. It has cut prices, slashed bonuses, and seen employee turnover skyrocket.
As a result, Vanke lost revenue, and its stock plunged nearly 50% in the past year. The company has a yuan-denominated unsecured loan outstanding of 9.46 billion yuan ($1.6 billion), and its bonds have been downgraded to junk by Moody’s and S&P Global Ratings.
A tumultuous few years have made the company’s debt load look like a mountain, but its top executives are still confident the firm can overcome its challenges. The company’s leadership team includes members with undergraduate degrees from the 1980s and early 1990s, when Western liberal ideas were popular on college campuses, and professionals with qualifications in architecture, design, or civil engineering. Most have MBAs from China Europe International Business School, Cheung Kong Graduate School of Business, and Shanghai Jiao Tong University.
The management team also has a deep appreciation for environmental issues. Founder Wang Shi started Vanke as a green property developer, positioning the firm as the first of its kind in China. The team has pushed for all new prefabricated and three-star green developments. The company’s chief executive said at an industry conference last month that the team has remained united despite the challenges and remains committed to its vision.
