Rare China support shows developer Vanke may be too big to fail


Vanke’s two top veteran executives stepped down after the company warned of a record US$6.2bil loss. — Reuters

SHENZHEN: China Vanke Co has received a lifeline by state authorities, a rare show of support that signals the developer is too big to fail even as dozens of property firms default amid China’s punishing housing slump.

As part of an overhaul unveiled late Monday, Vanke’s two top veteran executives stepped down after the company warned of a record US$6.2bil loss.

An official from Shenzhen Metro Group Co, its largest state shareholder, will take over as chair.

Shortly after the surprise announcement, local and state governments in Vanke’s home base of Shenzhen vowed to “proactively support” its operations through state media.

Vanke’s bonds soared as investors bet that the embattled developer will avoid the fate of China Evergrande Group and Country Garden Holdings Co that defaulted in recent years with little help from Beijing or other government entities.

“Vanke is the first developer to see direct state intervention, it’s almost like a bailout,” said CGS International Securities Hong Kong China property research head Raymond Cheng.

“I expect Shenzhen Metro to eventually become Vanke’s majority shareholder.”

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The unusual support shows that Vanke holds a special place within China’s moribund property sector.

The developer is known across the country and already has state backing via the subway operator in Shenzhen.

Vanke has deep roots as just the second company to list on the Shenzhen Stock Exchange in 1991, with a ticker symbol of 000002.

A default by Vanke would batter home sales further and erode confidence in other state-controlled developers such as Poly Developments and Holdings Group Co and China Overseas Land & Investment Ltd, which are now the country’s biggest builders by sales.

Vanke, which employs about 130,000 people, ranked fifth in 2024.

The Vanke lifeline also signals that China is willing to take more steps to halt a housing slump that’s now in its fourth year.

The government announced a slew of stimulus measures last year – from lower mortgage rates to eased buying restrictions – but they’ve done little to reverse the downturn. “The major intention of such a government move is to further stabilise home market sentiment and avoid potential panic,” said Chen Shujin analyst Jefferies Financial Group Inc.

“Home delivery will remain the top priority for local governments.”

Housing continues to be a drag on the economy, which also faces headwinds from creeping deflation and the prospect of higher tariffs from US President Donald Trump.

The economy unexpectedly limped out of the gate to start the year, underlining the need for Beijing to do more.

Factory activity shrank in January after three months of expansion, while a gauge for construction and services dropped, according to data released on Monday.

Support for Vanke will come initially from the local state government, which pledged to inject cash into its metro service to help the developer, according to the report in Nanfang Daily, a media outlet run by the Communist Party in the southern Guangdong province.

The government has sought to assuage concerns that Shenzhen Metro’s balance sheet may not be big enough to support Vanke.

The subway operator, which holds a 27% stake in Vanke, had combined assets of 716 billion yuan at the end of 2023, about half of Vanke’s 1.5 trillion yuan at the time. The city’s assets stood at more than five trillion yuan, and its annual revenue surpasses one trillion yuan, the report added.

The bustling city near Hong Kong is home to several tech giants including Tencent Holdings Ltd and Huawei Technologies Co.

“Shenzhen’s state assets are large-scale, strong and have enough ‘ammunition’,” the paper said, citing an unidentified official at the local state-asset supervision authority.

The assets ‘will support Shenzhen Metro to use as many market-based measures as possible to push forward Vanke’s prudent development’.

Investors welcomed the moves.

Furthermore, Vanke’s 3.15% dollar bond maturing in May rose about 11 US cents to 92 US cents Monday – the biggest jump in more than a year – well above the distressed levels of many developer peers. — Bloomberg

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