China’s troubled state-owned property giant Vanke Group says it will cut debt by 100 billion yuan (US$13.8 billion) in the next two years, as sales plunged and profit nearly halved in 2023 amid a deepening crisis in the sector.
But Zhu Jiusheng, Vanke’s chief executive officer, pointed out in an earnings press conference on Friday that the company’s fundamental capabilities, without giving specifics, have not changed, despite the short-term “challenges and pressure.”
The recent downgrade of its credit rating by global rating agency Moody’s to “junk”, in fact dealt “relatively limited impact,” he said, according to Chinese state-owned media reports.
Conversely, Vanke’s long-term partnership with 26 banks has established “our allies in risk prevention.”
Still, with or without allies, Vanke reported a 11 percentage point increase to a net debt ratio of 55% last year. Furthermore, 73% of its assets are financed by creditors, albeit a 3.7 percentage point decline from 2022, making the company highly leveraged. A below 50% level is usually considered healthy.
The State Council, or China’s cabinet, also asked 12 banks to provide a financing lifeline of as much as 80 billion yuan to Vanke two weeks ago.
This bucked the broader policy to let insolvent developers take their own downward course, which has compounded a spiraling crisis in the sector, once a major economic growth driver.
Analysts attributed Beijing’s rare intervention to Vanke’s state-held background – its largest shareholder is the Shenzhen Metro Group. But the move is in line with Chinese President Xi Jinping’s policy of advancing state enterprises and a retreat of the private sector.
Other distressed and privately-owned real estate firms Evergrande Group and Country Garden Holdings have been left to their own devices.
The Hong Kong High Court issued a liquidation order in January for Evergrande, which has been drowned in more than US$300 billion in debt.
A similar fate looms for Country Garden which received a liquidation petition from one of its creditors in Hong Kong. Its total liabilities are close to US$200 billion.
Country Garden said in a filing to the Hong Kong stock exchange on Thursday that it missed the deadline to release its 2023 annual results.
Hong Kong-listed companies are required to disclose their financial results three months after the end of the financial year and Thursday was the deadline, ahead of the Easter weekend holiday in the city. Evergrande has not disclosed its results either.
Meanwhile, from Vanke’s view point, Zhu said bankers are concerned about three factors – where the capital was deployed in the past financial year, which projects to finance, and adequacy of cash flow.
“Once these three questions are answered, the financing channels and banks’ supportive attitude become affirmative and the strength of their support will be adequate,” he added.
According to Zhu, Vanke has secured 16.9 billion yuan in additional funding for 42 projects across 22 Chinese cities under Beijing’s “white list” of approved projects that financial institutions should back.
Edited by Taejun Kang and Mike Firn.