Real estate troubles persist in China with fresh pressures on the country’s second largest property developer. This includes a ratings cut and reported concerns by local banks and insurers.
On Monday, Moody’s withdrew the «Baa3» issuer rating of Vanke replacing it with a «Ba1» corporate family rating. It became the first of the three leading credit rating agencies, which also includes Standard & Poor’s and Fitch, to effectively downgrade Vanke into junk territory.
According to Moody's research note (behind paywall), the Chinese developer's «credit metrics, financial flexibility and liquidity buffer» are expected to weaken over the next 12 to 18 months, citing challenges such as «declining contracted sales» and «rising uncertainties over its access to funding».
Bank Talks
Local lenders are already making efforts to mitigate risks. According to a «Bloomberg» report on Tuesday citing unnamed sources, Vanke is in talks with major creditor banks on a potential swap of bond holdings into secured debt which could help avoid a public default.
The talks are being coordinated by Chinese financial regulators and the local government of Shenzhen, which is a part owner of the developer.
Insurer Protection
The insurance sector is also being affected with at least three Beijing-based players sending executives to Vanke’s Shenzhen headquarters to discuss debt repayment plans, according to a separate «Bloomberg» report last week. Options include an extension of the repayment deadline by a year, the addition of collateral and issuance of bonds.
Vanke is China’s second largest real estate company by sales and it has liabilities totaling 1.3 trillion yuan ($181 billion), as of mid-2023.
