Real Estate : China is rushing to stop yet another developer Now

Real Estate

Real Estate : China is rushing to stop yet another developer Now

  • China is rushing to stop yet another large real estate developer from failing

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  • Editor’s Note: Get all the information you need to understand about China’s rise and its effects on the world by subscribing to CNN’s Meanwhile in China newsletter.
  • According to reports, Chinese banks are rushing to save one of the largest real estate developers in the nation after Moody’s downgraded its credit rating to “junk” status on Monday.
  • Beijing has been having a difficult time reviving the nation’s failing real estate sector, and it seems that all efforts are being made to keep China Vanke from following in the footsteps of Country Garden and Evergrande, which both experienced financial default and face liquidation.
  • According to reports from Chinese state media on Tuesday, negotiations were underway for a syndicated loan of up to 80 billion yuan ($11.2 billion) for Vanke, which would help the company meet impending repayment obligations.

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  1. Among the major banks involved were the six biggest state-owned lenders.
    According to state media outlet Cailianshe, which cited an unidentified source close to the possible deal, the loan’s provision is still up in the air.
  2. In an effort to prevent a default, a number of insurance companies have dispatched teams to Vanke’s headquarters for a fresh round of debt negotiations, according to the Economic Observer, another state media outlet.
  3. Vanke has been contacted by CNN for comment.
  4. Vanke, which was established forty years ago, was the second-largest developer in the nation by sales last year, but it has suffered greatly from the decline in both home prices and apartment demand.

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  • In Shenzhen and Hong Kong, Vanke’s shares shot up after rumors of fresh funding surfaced.
  • Tuesday saw a 10.3% increase in shares listed in Hong Kong and a 5.7% increase in shares traded in Shenzhen. However, they have yet to turn a profit this year.
  • Moody’s downgraded Vanke’s rating on Monday to Ba1, also known as a junk rating.
  • This implies that in order to offset the increased risk of payment default that bond investors are assuming, the company will need to offer a higher yield on its bonds.
  • According to a press release from Moody’s senior vice president Kaven Tsang, the rating actions “reflect Moody’s expectation that China Vanke’s credit metrics, financial flexibility, and liquidity buffer will weaken over the next 12 to 18 months because of its declining contracted sales and the rising uncertainties over its access to funding amid the prolonged property market downturn in China.”
  • Vanke’s ratings have remained at investment grade, according to S&P and Fitch, two other international rating agencies.
  • Established in Shenzhen in 1984, Vanke is a leading enterprise within the real estate industry of China.
  • The “Godfather” of the sector, Wang Shi, was its founder and was compared to Donald Trump by Time magazine.
  • With a well-publicized initial public offering (IPO) on the then-emerging Shenzhen Stock Exchange in 1991, it was the first listed real estate company in mainland China.
  • In 2017, the company allowed the Shenzhen government to become its largest shareholder in order to repel a hostile takeover attempt by a Chinese activist investor.
  • Refinitiv eikon states that Shenzhen Metro, a government-owned company, currently owns 33.4% of Vanke.

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  1. The company was one of the few developers that had been deemed financially sound by international rating agencies prior to the disclosure of its cash crunch in late 2018.
  2. Moody’s action reflects growing concerns that even relatively healthy companies with strong state support are being pulled down by toxic market conditions in China’s real estate industry, including low demand and a challenging financing environment.
  3. 2023 saw a 10% decrease in Vanke’s contracted sales, coming in at 376.12 billion yuan ($52.4 billion). Its sales fell by 32% in January 2024.
  4. Over the last few months, investors have been selling off Vanke’s shares.
  5. Since November, its Hong Kong-listed stock has experienced a nearly 30% decline. It is down 9% for the year thus far.
  6. Following the default on its international debt by Evergrande, the developer with the highest debt in the world, in 2021, Beijing has been frantically trying to resolve its real estate crisis.
  7. Following that, the crisis grew as numerous significant developers also failed to pay their creditors.
  8. The consequences have threatened the overall economy by undermining the trust of investors, companies, and homebuyers.
  9. The industry has not yet recovered despite the Chinese government’s stimulus measures.
  10. Property sales fell 6.5% in 2023 compared to 2022.
  11. Investment in real estate decreased by 9.6% for the second year in a row.
  12. During the National People’s Congress last week, China’s housing minister, Ni Hong, assured reporters that regulators would assist real estate developers with their “reasonable” financing needs.
  13. He restated a recently instituted “whitelist” mechanism designed to bring liquidity to the industry beleaguered by the crisis.
  14. Banks have matched over 6,000 real estate projects nationwide with development loans.
  15. However, he added that Beijing will not support developers who are “seriously” behind problems.
  16. He declared, “We should let real estate companies that are seriously insolvent and have lost their operating capabilities go bankrupt or be restructured.”
  17. We interpret the tone negatively,” analysts at Nomura wrote on Monday.
  18. They claimed that Ni has stated unequivocally that ensuring the completion of real estate projects is the government’s top priority, not safeguarding the companies of developers.

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