China Vanke plans meeting with bondholders to seek 'solutions' for repaying an onshore bond

China Vanke said it will convene a second meeting with bondholders to seek “solutions” for repaying an onshore bond, as the developer works to avoid a potential default after investors rejected a proposed payment extension.

According to a filing with the National Association of Financial Market Institutional Investors on Monday, the meeting for the 2 billion yuan ($283.56 million) note will begin on Thursday, with voting set to conclude on December 22 at 0200 GMT.

The move follows bondholders’ rejection of Vanke’s earlier proposal to delay repayment by one year, heightening default risks for the state-backed developer and reviving concerns over China’s struggling property sector. The bond is due on Monday and carries a five-business-day grace period.

In a separate filing with the Hong Kong stock exchange, Vanke apologized for the “impact caused to the relevant parties” by issues related to the proposed rollover. The company said it would continue to communicate and negotiate with stakeholders, refine its proposals, and seek solutions that protect the long-term interests of all parties.

Credit Risk Pressures

Vanke’s yuan-denominated bond due January 2028 fell more than 20% in early trading, prompting the Shenzhen Stock Exchange to suspend trading. Another onshore bond due July 2029 dropped 8%. Shares of Vanke were down about 3% in Shenzhen and 4% in Hong Kong as of 0157 GMT.

The company’s initial attempt to secure approval for a payment delay required support from at least 90% of noteholders. The main proposal—to postpone principal and interest payments by one year without additional credit support—was rejected, with 76.7% voting against it.

Two alternative proposals that included credit enhancement measures received partial backing, with one garnering 83.4% approval. However, neither met the 90% threshold and were also rejected.

Despite the setback, some analysts remain cautiously optimistic.

“We think Vanke’s bondholders may demand more credit enhancement or earlier repayment of some principal for the bonds due on December 15,” said Jeff Zhang, an equity analyst at Morningstar. “The second option came close to being approved, so we are hopeful a deal could be reached in the next five days.”

Zhang added, however, that Vanke still relies heavily on external liquidity support even to cover interest payments, leaving its credit risk elevated.

Ongoing Financial Strain

Vanke’s difficulties underscore the continued stress in China’s property sector, which has been grappling with a prolonged downturn since 2021. Several high-profile developers have defaulted in recent years, including China Evergrande, which was ordered to liquidate by a Hong Kong court and later delisted after a liquidity crunch triggered by tighter regulations.

The real estate sector, once accounting for roughly a quarter of China’s gross domestic product, has been weighed down by slowing demand and weakened buyer confidence following multiple developer defaults, adding pressure to the world’s second-largest economy.

Vanke, which is about 30% owned by state-owned Shenzhen Metro Group, had long been viewed by some investors as relatively insulated due to its government backing. However, analysts warn that a default by Vanke could have far-reaching consequences.

“If Vanke ultimately defaults, the ramifications for China’s property sector could be significant,” Zhang said. “Investors may become more concerned about balance sheets and the government’s willingness to bail out even the perceived ‘safe names.’”

In its Monday filing, Vanke said interest accrued during the grace period will be calculated on the outstanding principal and unpaid interest at the bond’s coupon rate plus an additional 5 basis points.

Separately, the developer is also seeking to extend by one year the repayment of another yuan bond worth 3.7 billion yuan that is due on December 28. A bondholder meeting for that note is also scheduled for December 22.

($1 = 7.0548 Chinese yuan) -Reporting by Shivangi Lahiri in Bengaluru; Editing by Sumeet Chatterjee and Muralikumar Anantharaman/Reuters