China Vanke’s bonds eased after Moody’s starts ratings review

By Clare Jim and Xie Yu

HONG KONG (Reuters) -Dollar bonds of China Vanke, the country’s No.2 developer by sales, eased on Tuesday after Moody’s said the property company’s rating would now be considered for junk status, adding to the woes in the property sector.

Its 2025 bonds were bid at 67.638 cents on the dollar in Asia morning hours, compared to around 68.5 overnight, according to data by Duration Finance. Its 2029 bonds were bid at 43.045 cents, down from 43.6 cents.

Vanke’s Hong Kong-listed shares opened down 1%, though they strengthened to climbed 1.4% as of 0229 GMT, while its Shenzhen-listed shares dropped 0.4%.

Moody’s said on Monday it withdrew Vanke’s ‘Baa3’ rating which is the lowest of Moody’s investment grade ratings, and assigned ‘Ba1’ corporate family rating (CFR). It also said all of Vanke’s ratings would be on “review for downgrade”.

Vanke is one of the few remaining Chinese developers with investment-grade ratings. If another major rating agency such as S&P or Fitch follows suit, Vanke’s dollar bonds would face the prospect of being dumped out of some of the world’s most important investment indexes.

In a statement to Reuters, Vanke said the “company’s current operation and refinancing are normal and financing channels are stable”. It also said the impact of a ratings downgrade on its financing activities was “controllable”.

Authorities are scrambling to stabilise a real estate sector in the throes of a debt crisis characterised by default among the country’s biggest property firms, with support including boosting financing for developers of certain projects.

The Moody’s action came after Reuters earlier reported Monday that China had asked banks to enhance financing support for state-backed Vanke and called on creditors to consider allowing private debt maturities to be extended.

Any repayment troubles at Vanke could worsen the debt crisis and dampen market confidence, analysts have said.

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“The market is still concerned about Vanke’s long-term debts,” said Li Gen, chairman of Beijing G Capital Private Fund Management Center LLP, which specialises in credit investment.

“The real pressure will kick in in the second half of this year. If without timely support from its shareholders, while home sales continue to be weak, Vanke will face draining liquidity.”

Vanke has around 14 billion yuan ($1.95 billion) worth of offshore bonds and around 20 billion yuan of onshore bonds coming due or becoming puttable through to June 2025, according to the rating agency.

Moody’s said in a statement it expects Vanke’s financial flexibility and liquidity buffer to weaken over the next 12-18 months because of its declining contracted sales and the rising uncertainties over its access to funding.

The firm’s sales in the first two months of this year dropped 40% from a year ago, after falling 10% for the full year of 2023.

In Hong Kong, the Hang Seng Mainland Property Index rose 2.6% and China’s CSI300 Real Estate Index edged up 0.3% in morning trading.

Vanke’s share price and bonds had faced major selling pressure last week after reports it was facing financial stress and had sought debt maturity extensions from some investors.

The company told Reuters on Friday it had deposited funds required to repay $630 million U.S. dollar notes that were due on Monday.

Vanke is government-backed with 33.4% owned by Shenzhen Metro, a company held by Shenzhen’s state asset regulator.

($1 = 7.1769 Chinese yuan renminbi)

(Reporting by Scott Murdoch in Sydney, Clare Jim, Donny Kwok and Xie Yu in Hong Kong and Jason Xue in Shanghai; Editing by Christopher Cushing and Stephen Coates)