In the financial markets, the latest developments of China’s well-known real estate company Vanke have attracted widespread attention. Recently, rumors have circulated in the market about Vanke negotiating with several creditor institutions — mainly insurance companies — to extend the repayment period for what is known as “non-standard debt”.
Although creditors have debunked these rumors, Vanke’s stock and bond prices have still suffered significant declines. On March 4th, Vanke’s domestic bond prices generally fell, with “22 Vanke 06” dropping over 36%; “21 Vanke 04” falling to 65 yuan, a decline of 19.25%; “20 Vanke 08” decreasing by more than 9%, to 65.46 yuan; “22 Vanke 02” also plunging over 8%, to 74.07 yuan, all setting historic lows.
Looking at a longer time scale, since last week, the prices of several bonds such as “21 Vanke 02”, “22 Vanke 01”, and “20 Vanke 06” have plummeted. As for the stock market, the situation is equally concerning. Vanke’s A-shares and H-shares have fallen in sync, with Vanke A (000002.SZ) closing at 9.43 yuan per share, down more than 4%; and Vanke Enterprises (02202.HK) finishing at 5.60 Hong Kong dollars per share, tumbling over 7%.
The financial situation of Vanke is under close scrutiny. According to a statement released by Xinhua Asset Management Co., Ltd.—referred to here as “Xinhua Asset Management”—on its official platform, the company has noticed the false information regarding Vanke and has made clarifications. Reporters found that Vanke and its subsidiaries have borrowing relationships with multiple asset management institutions, with nearly 9.8 billion yuan in loans coming from Xinhua Asset Management.
In fact, the connection between the two goes far beyond this. According to Vanke’s financial reports, Kang Dian, the former chairman of Xinhua Insurance, once served as an independent director of Vanke. Based on the latest financial report data, as of September 30, 2023, Vanke had more than 103.6 billion yuan in cash on hand, a decrease of 24.4% since the beginning of the year; and its short-term debt reached 47.74 billion yuan, with the cash coverage multiple for short-term debt being only 2.2 times. However, many industry experts point out that due to regulatory and business model influences, the cash on hand for real estate companies is much less than the data suggests, and the actual funds that can be utilized are quite limited, making the true situation difficult to thoroughly understand.
A comprehensive analysis of the announcement data shows that there is a complex equity and debt relationship between Xinhua Asset Management and Vanke. According to a document of Vanke Enterprise Co., Ltd. for the year 2023, Xinhua Asset Management and Taikang Asset Management are major lenders in Vanke’s unconventional financing methods. As for Xinhua Asset Management, the company has seven loans totaling 97.82 billion yuan, with the earliest loan amounting to 26.25 billion yuan, expected to mature on December 25, 2024. In the report of Xinhua Insurance, it is mentioned that there are three structured entities controlled by Xinhua Insurance related to Vanke, with a 100% holding of the shares in these products, totaling an actual paid-in investment of 5.302 billion yuan.
By the end of 2022, Taikang Asset Management Company’s total borrowings reached 4.6 billion yuan, with the earliest maturing loan due to expire on July 6, 2032. Meanwhile, Ping An Bank, Zhongyuan Trust, and Zhongcheng Trust loaned out funds totaling 5.8 billion yuan, 3 billion yuan, and 2.2 billion yuan respectively.
Xinhua Asset Management Company not only has loan relations with Vanke Group but also has connections in terms of equity. As of June 30, 2023, “Xinhua Life Insurance Co., Ltd. – Dividend – Personal Dividend – 018L-FH002 Shenzhen” held a 1.37% stake in Vanke A shares, among the top ten shareholders. In addition, the financial report of Vanke Group shows that Kang Dian, who was once the chairman and executive director of Xinhua Insurance, is now an independent director of Vanke.
Furthermore, there are concerns about whether Vanke Group’s cash flow can effectively cover its short-term debts. According to the financial report for the third quarter of 2023, as of September 30, the group had a total of 101.2 billion yuan in cash and cash equivalents, with available cash at 103.68 billion yuan, a decrease of 24.4% from the beginning of the year. Vanke’s interest-bearing debt totaled 323 billion yuan, an increase of 8.9 billion yuan from the previous year; short-term debt was 47.74 billion yuan, with a cash coverage multiple of 2.2 times for short-term debt.
Although these figures sound quite robust, industry insiders point out potential risk factors. Due to the unique operating mode of real estate companies, the actual funds freely available for use by listed companies are far less than the book amount. It is understood that some monetary funds are still tied up in various projects due to presale regulatory restrictions and have not yet met the conditions to return to the parent company. Take Evergrande as an example, although its half-year report for 2023 showed that its cash and receivables reached 485 billion yuan, and the multiple of short-term debt coverage was 4.46 times, the company still faced financial difficulties later on.
As for the proportion of Vanke’s bank loans, although bank loans accounted for 61.4% of its interest-bearing liabilities, an increase of 2.8 percentage points from the same period of the previous year, this is still low compared to its peers. For instance, Gemdale Group’s bank loans accounted for 70.84% of its interest-bearing liabilities, while the proportion of public market financing was 28.98%. Poly Development and China Merchants Shekou’s bank loan ratios of interest-bearing loans were 86% and 62.8%, respectively. Some financial experts believe that a lower proportion of bank loans could lead to higher debt costs for Vanke.
Recent developments show that Vanke is accelerating the acquisition of funds through the sale of assets. In February, Vanke sold 50% of its stake in Shanghai Qibao Vanke Plaza to Link REIT of Hong Kong for 2.6 billion yuan, which is about 70% of the assessed value. Vanke’s wholly-owned subsidiary, Shenzhen Yingda Investment Fund Management Co., Ltd., also sold its 6.16% stake in Shenzhen High-tech Investment Group Co., Ltd. to Shenzhen Investment Holdings Co., Ltd. Just two months earlier, Vanke had sold the equity of three of its Banyan Tree hotels, netting 480 million yuan in cash.
