Fitch Downgrades China Vanke Amid Heightened Default Risk

Fitch has downgraded China Vanke, the troubled Chinese homebuilder, to a ‘C’ rating, and Vanke HK, its Hong Kong subsidiary, to ‘CC’, Reuters said on Wednesday.

In announcing its decision, the ratings agency said: “We expect China Vanke’s free cash flow to remain negative in 2025 and 2026, even after including asset-sale proceeds.

“China Vanke’s ratings reflect its heightened default risk from being in a grace period for bond repayment.”

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The news came despite China Vanke offering to pay overdue interest on a 2 billion yuan ($284 million) bond before the expiration of a grace period next week, as the developer scrambles to get creditor approval to delay a principal payment and avoid default.

Block on sales data

China’s property sector once accounted for a quarter of the country’s gross domestic product. But it has been hit by slowing demand, with homebuyer sentiment hurt by developer defaults, which has weighed on growth in the world’s second-largest economy.

Investment has fallen for three straight months, while retail sales growth last month was the weakest in three years.

The property sector slump has lasted for five years and some say it could last for another five to 10 years because Beijing has been prioritising stability and long‑term restructuring over short-term stimulus.

The British bank Barclays has said the collapse in home values over the past four years has eliminated more than $18 trillion from household wealth. And construction activity has been greatly eroded, with half-finished projects in most cities and even “ghost cities” with few residents.

The topic has become so sensitive that Chinese officials told private data providers in November to stop publishing home sales figures, after a 42% year-on-year drop in new home sales by the top 100 builders in October, which China Real Estate Information reportedly said was the largest monthly fall in 18 months.

Some analysts said real estate prices are likely to have been reduced by half (50%) and warned that the slump could go even further in lower-tier cities.

Vanke bondholders meet Thursday, vote Dec 22

In the latest proposal to delay the repayment of the bond that matured on Monday, the state-backed developer said it would pay the overdue 60 million yuan in interest by December 22, according to a filing on Tuesday with the National Association of Financial Market Institutional Investors.

The repayment has a grace period of five business days.

Vanke is also seeking to extend the grace period for the bond repayment to 30 trading days from five at present.

The developer’s first attempt to extend repayment was rejected by bondholders and it is holding a second meeting with bondholders that will start on Thursday and culminate with voting on December 22 at 0200 GMT.

The interest-payment proposal was also on the agenda at the first bondholder meeting, but it was tabled by investors not the company, according to sources with knowledge of the matter. This time, the developer put forward the interest-payment proposal, which some market participants viewed as a sweetening of the terms.

“This proposal marks an improvement on Vanke’s initial plan to extend both principal and interest by one year,” said Yao Yu, founder of credit research firm RatingDog, adding that issuer-led proposals imposed stronger obligations than those put forward by holders.

The package also seeks a waiver of procedural time limits to speed up the timetable for convening the meeting before the current five-business-day grace period expires; failure to pass the waiver would trigger a default.

Each of the three proposals requires at least 90% approval.

Vanke was set to meet in Shenzhen with some insurance firms and commercial banks on Wednesday afternoon, Bloomberg News reported, citing people familiar with the matter. The report said it was unclear what the meeting was about.

Vanke did not immediately respond to a request for comment.

The cash-strapped developer surprised the market last month by seeking a public bond extension after billions in loan support from its state shareholder Shenzhen Metro this year.

It is also proposing to extend repayment for its 3.7 billion yuan ($525 million) note due on December 28 by a year, sources have said.

Vanke’s Shenzhen-listed shares closed down 0.2%, while its Hong Kong-traded stock edged up 0.8%. The developer’s onshore bonds were largely trading flat.