Vanke Bond’s 144% Rally Shows Credit Strain Easing After Rescue

Published 19 May 2025, 22:00:00 GMT

By Bloomberg News

(Bloomberg) -- Financial strains are easing at China Vanke Co. after its largest state shareholder threw a lifeline to the
company that proved too big to fail. 

Since local government officials intervened in January to stabilize Vanke’s operations and finances, the builder has repaid publicly-traded bonds with a combined principal of 14.4 billion yuan ($2 billion). That included a 3.15% dollar bond with $423 million outstanding which matured on May 12, its only such note of the year, Bloomberg reported. 

In four months, its longer dated dollar bonds have bounced more than 44 cents to above 74 cents on the dollar. While that’s still a distressed level, the move suggests investors holding such assets since Jan. 16 through the turmoil this year may have amassed a return of nearly 144% as May 16.

Vanke’s stocks remain lackluster, with its Hong Kong and mainland-traded shares both down about 6% since the late January overhaul. 

“Near-term default risks have likely abated, considering the expectation of shareholder support,” Leonard Law, a senior credit analyst in Lucror Analytics Singapore, wrote in a note last week. 

Government rescue efforts for Vanke are trickling out. 

Since late April, Vanke announced it received two generous loans from its largest shareholder Shenzhen Metro Group Co. Vanke may prepay at any time, extend the repayment period with the lender’s consent, and is allowed to pay the interest together with the principal at maturity, according to terms disclosed in exchange filings. 

A total of $6.1 billion of Vanke’s debt has emerged from distressed trading levels since Jan. 17, according to data compiled by Bloomberg News.

The recent two loans stood out from the previous ones extended around February, as no requests for asset pledging were mentioned. “These two loans without collateral signal Shenzhen Metro has stepped up its support for Vanke,” said Yan Yuejin, vice president of Shanghai E-house’s research arm.

All of Shenzhen Metro’s four loans this year carry a floating interest rate of 76 basis points lower than China’s benchmark lending rate for short-term loans, which stood at 2.34% as of early May. They are all earmarked to help Vanke repay principal and interest on publicly issued bonds, filings showed. 

“We recognize Vanke’s efforts to fulfill delivery and debt obligations,” with state help, Citigroup Inc. analysts led by Griffin Chan wrote in a May 1 report. Still, the Wall Street bank downgraded the company’s stock to neutral due to its continued losses. 

Concerns Linger

Despite state backing, Vanke isn’t completely out of the woods. The builder and its subsidiaries still have 25.4 billion yuan of onshore bonds maturing or facing redemption this year, according to data compiled by Bloomberg. 

The maturity wall comes as the developer’s contract sales continued to weaken, which is set to widen its funding gap, according to Bloomberg Intelligence analysts Kristy Hung and Monica Si. 

Fitch Ratings downgraded Vanke’s long-term issuer default score by one notch to CCC+, a rating that indicates a default is a real possibility. 

Vanke’s sales declined nearly 40% on year in the first quarter, worse than Fitch’s expectation of a 20% full-year decline. The drop widened to 45% in April from a year prior, according to China Real Estate Information Corp, more severe than a 8.7% drop seen in peers. 

“We expect the weak fundamentals for Vanke to continue without a rosy recovery of the overall sector,” Iris Chen, a
credit desk analyst at Nomura International HK Ltd., wrote in a recent note in April. 

--With assistance from Jackie Cai and Shuiyu Jing.