Bonds of Chinese state-backed property developer Vanke (2202) tumbled on Wednesday, after media hints of a possible restructuring of its debt reignited doubts about further government support for the crisis-hit sector.
Several yuan bonds of Vanke, a household name with many projects in China's biggest cities, slid more than 20 percent, with some down more than 30 percent, triggering suspensions of the company's seven exchange-traded bonds by the Shenzhen Stock Exchange.
Vanke's yuan bond due in March 2027 traded at 55 per 100 par value by 0555 GMT, down from 80 at the open, for a plunge of 35 percent.
On Tuesday, financial publication Octus said Beijing gave preliminary guidance to the government of Shenzhen, where state-affiliated Vanke is based, to consider a "market-oriented approach" for dealing with the developer's debt.
The term was a euphemism for restructuring, Octus cited the source of its report as saying.
Two people with knowledge of the situation told Reuters that state-owned China International Capital Corporation (CICC) had been brought in to assess Vanke's debt.
DEBT RESTRUCTURE AMONG THE OPTIONS
A debt restructuring was among the options the investment bank featured in an internal report to the central government a few weeks ago, one of the sources said.
Financial publication REDD was the first to report CICC's involvement on Wednesday.
Vanke, CICC, the Shenzhen government and China's State Council, or cabinet, which oversees state-owned enterprises, did not immediately respond to Reuters requests for comment.
A debt restructuring or default by Vanke, with 364.3 billion yuan of interest-bearing liabilities, would trigger a new wave of anxiety in both financial and property markets.
That could potentially dwarf defaults by privately-owned peers Evergrande and Country Garden this decade.
Vanke's 2027 and 2029 dollar bond were bid at 42.5 cents and 37 cents on the dollar, respectively, further down from Tuesday's levels of around 55.4 cents and 48.3 cents, data from Duration Finance showed.
ENTRENCHED DEFLATIONARY PRESSURES
Deflationary pressures from sagging household and business confidence have become entrenched in China since the COVID-19 pandemic, particularly in housing.
New home prices fell in October at their fastest monthly pace in a year, and S&P Global Ratings says the market is still searching for a bottom.
Although China rolled out a series of key measures in the second half of 2024 to support the market, large-scale new stimulus has not been forthcoming this year. Recent policy steps have mainly reaffirmed existing commitments.
This month, state-owned Shenzhen Metro Group, which holds a stake of a third stake in Vanke, agreed to provide loans of up to 22 billion yuan in 2025 and the first half of 2026, a stock exchange filing showed, against collateral from Vanke.
Markets are replaying a pattern from the turn of the year, said Yao Yu, founder of Shenzhen-based credit research firm RatingDog.
At the time, Vanke bonds rebounded sharply on signs of state support following a steep sell-off amid speculation that the developer would not be able to meet debt repayment obligations.
"Now, market rumors suggest Shenzhen has sought help from Beijing, leaving two scenarios — no rescue or central backing," Yao said.
Reuters
