China’s real estate giant Vanke has once again found itself in a liquidity crisis, with rumors circulating that the Chinese government will unprecedentedly allocate local bond quotas to alleviate Vanke’s crisis. Analysts believe that the real estate crisis in China is a long-term problem, and most real estate enterprises are likely unable to escape the fate of eventual bankruptcy.
According to informed sources who spoke to the Western financial media Bloomberg, the Chinese government will assist real estate developer Vanke Group in repaying debts by filling a capital gap of 50 billion yuan.
Under this plan, regulatory authorities will allocate 20 billion yuan of local government special bonds to be used to acquire unsold properties and vacant land of Vanke. This funding will enable Vanke to repay its due public and private debts for the year. Vanke and its affiliated companies will also be allowed to utilize other sources of financing, including issuing new bonds and bank loans, to repay debts.
On February 12, Vanke’s stock price on the A-share market in China suddenly hit the daily limit in the half-hour before closing. At the same time, Vanke’s stock price in the Hong Kong stock market also showed strong gains, rising by over 10% on that day. The stock price’s reaction seems to confirm Vanke receiving significant favorable factors.
Local government special bonds typically refer to government bonds issued by local governments (provinces, autonomous regions, and municipalities directly under the central government) for public welfare projects with certain returns, which are repaid in principal and interest within a specified period. Local governments fund the acquisition of a real estate company’s properties and land through bond issuance, a move never seen before.
Currently, Vanke’s total debt is approximately 982 billion yuan, and a new wave of debt repayments is approaching. According to data from China’s financial information service provider Wind, Vanke has about 32.645 billion yuan of domestic debt due within a year. In the public market, Vanke has a total of 9 bonds, domestically and internationally, due this year, with a total scale of 21.59 billion yuan.
The first quarter is the peak period for Vanke’s debt repayment, with 9.89 billion yuan of public debt needing to be fulfilled domestically. The peak of foreign debt payments will be in May, with 455 million US dollars needing to be paid that month.
However, Vanke’s property sales have significantly declined, leading to a liquidity crisis. According to Vanke’s performance forecast disclosed in late January, it is expected to incur a net loss of about 45 billion yuan attributable to shareholders of listed companies in 2024, compared to a profit of 12.163 billion yuan in the same period last year.
According to a statement released by Vanke at the beginning of the year, in 2024 the company achieved a cumulative contracted sales area of 181.07 million square meters and a contracted sales amount of 246.02 billion yuan. In 2023, the company achieved a cumulative contracted sales area of 246.6 million square meters and a contracted sales amount of 376.12 billion yuan. This indicates a significant decline of 26.57% in contracted sales area and 34.59% in contracted sales amount for Vanke in 2024.
Headquartered in Shenzhen, China, Vanke Group is one of the country’s most renowned real estate enterprises, often referred to as one of China’s four major real estate leading enterprises alongside Country Garden, Evergrande, and Sunac. During the boom times in the market, these four leading real estate companies consistently topped sales performances. However, with the arrival of the real estate market crisis in China, as Country Garden, Evergrande, and Sunac faced funding chain ruptures, Vanke has also been on the brink of collapse, with only Vanke being rescued by the Chinese government.
This recent move is not the first time for the Chinese authorities to intervene. In March last year, under the coordination of the Chinese State Council, the government instructed banks to provide financing support to Vanke and requested creditors to consider extending Vanke’s private debt repayment deadlines.
Economist Li Hengqing from the Washington Institute for Economic Studies stated on February 15 to Epoch Times that Vanke has a background of state-owned assets, and the government has heavily promoted it in the past, while other real estate companies like Country Garden are private enterprises. “There are biological sons, and there are adopted ones. It is clear who the government will save.”
Vanke is a mixed-ownership enterprise, with its largest shareholder being Shenzhen Metro Group directly under the Shenzhen State-owned Assets Supervision and Administration Commission, holding a 27.2% stake.
However, Li Hengqing believes that the scale of the Shenzhen Metro Group is not sufficient to save Vanke. He mentioned that Vanke’s scale is very large, even larger than the Shenzhen Municipal State-owned Assets Supervision and Administration Commission itself. The Shenzhen Metro Group’s revenue in 2023 was only over 20 billion yuan, with a net profit of just over 700 million yuan, and in 2024, it even experienced huge losses. “How can they rescue Vanke, which is facing nearly a trillion yuan in debt, with such a scale?” he questioned.
As for whether the allocation of 20 billion yuan in bond quotas by local governments can solve Vanke’s problems, Li Hengqing is also not optimistic. He pointed out that Vanke has a 50 billion yuan capital gap, and it needs to leverage this 20 billion yuan to unlock the remaining 30 billion yuan, which can only be resolved through its own financing, either via loans or bond issuance. Moreover, Vanke’s credit rating is considered “junk grade,” making it unlikely for anyone to pick up.
In less than a year, international credit rating agency Moody’s has downgraded Vanke’s rating multiple times. Last March, Moody’s downgraded Vanke’s issuer rating from Baa3 to Ba1 and placed all ratings under review for downgrade. In the latest downgrade on February 11, Moody’s cited Vanke’s weak financial performance and liquidity as reasons for lowering Vanke’s corporate family rating from B3 to non-investment grade Caa1.
Li Hengqing believes that the core issue lies in the fact that China’s real estate market still requires a long period of adjustment, and most real estate enterprises are unlikely to survive. He mentioned that China’s real estate sector has already been overly developed, with so many properties built that Chinese citizens simply cannot afford to buy and digest them all. Moreover, people have low expectations for the entire Chinese real estate market, and price reduction is the prevailing trend.
“We have already seen a price drop of over 30%, and on the current basis, it may need to drop by another half. The most crucial point is to bring prices back to a value-based state, a process that may take ten years. Can these companies survive for ten years? I think the vast majority won’t make it,” he said.
Just days ago, there was a significant change in Vanke’s core management team.
On February 5, Vanke announced internal personnel changes, clearly defining the responsibilities of the management team members. Among them, Xin Jie, Chairman and Party Secretary of the major shareholder Shenzhen Metro Group, succeeded former Vanke Chairman Yu Liang as the Chairman of the Vanke Board, overseeing all operations.
At the same time, Vanke also internally announced a list of 10 new management personnel, all from the Shenzhen state-owned system, with many of them serving in positions at Shenzhen Metro Group.
Reportedly, these 10 individuals hold senior management positions within Vanke, involving the strategic investment and operation management division, the financial fund management division, and the development and operation business group, as well as the legal affairs division, the group’s office, and the two major regional companies in East China and Beijing.
The head of the Shenzhen State-owned Assets Supervision and Administration Commission stated that they support the Shenzhen Metro Group in promoting Vanke’s development. By the end of 2024, the assets of Shenzhen’s state-owned enterprises exceeded 5 trillion yuan, providing enough financial “ammunition.”
State-run media Interface News mentioned that the significant change in Vanke’s management marks its formal entry into the “state-controlled” era.
The original core team of Vanke has previously been adjusted. On January 27, Vanke Enterprise Co., Ltd. announced that Chairman of the Board Yu Liang, President Zhu Jiusheng, and Board Secretary Zhu Xu all resigned.
According to the announcement, after resigning as Chairman of the Board, Yu Liang will continue to serve as a board member and Executive Vice President of the company; Zhu Xu will remain at the company; whereas Zhu Jiusheng will no longer hold any position within the company. There were rumors circulating that Zhu Jiusheng had been taken away for investigation by public security authorities.
Regarding this, Li Hengqing stated that the original team is fundamentally unable to continue, and there is no way they can persist. The Shenzhen State-owned Assets Supervision and Administration Commission provided the money, so they sent people in, which is not surprising. Even if they hadn’t provided the money, it would be the same, as they essentially agreed to bear these massive debts. However, the real problem remains unsolved, regardless of who is involved.