China Vanke Receives Crucial Funding Support from State Shareholder

China Vanke Co. has secured a lifeline from its largest state shareholder, Shenzhen Metro Group Co., to address its financial challenges. Shenzhen Metro has agreed to provide a 2.8 billion yuan ($383 million) loan facility, offering a lifeline for Vanke as it grapples with substantial debt obligations.

The three-year secured loan agreement will see Vanke provide asset collateral of up to 4 billion yuan to Shenzhen Metro, including an 18% stake in its property management unit, Onewo Inc. This move underscores Shenzhen Metro's unwavering support for Vanke.

The loan facility comes as Vanke faces near-term maturities of 5 billion yuan in bonds this month and $4.9 billion throughout the year. Concerns over Vanke's financial stability have weighed on its bond prices, but the injection of support has helped restore some market confidence.

"Although the size is not sufficient to cover Vanke's short-term maturities, we believe this gesture should bolster market sentiment," said Iris Chen, credit desk analyst at Nomura International HK Ltd.

Bond prices for Vanke have responded positively to the news. Its 3.975% dollar note due in 2027 gained 4.9 cents to 70.5 cents, while its 3.64% onshore bond due in 2027 jumped 14.2% to 81 yuan.

This financial backing follows a recent management shakeup at Vanke, with two top executives stepping down. The company also warned of a record $6.2 billion loss. Shenzhen Metro has appointed an official to oversee Vanke as chairperson, while local authorities have pledged "proactive support."

The unprecedented state intervention signals that Vanke's financial health is crucial for China's housing market and overall economy. The company employs approximately 130,000 employees and ranked fifth in sales in 2024.

The loan facility offers a floating interest rate of 76 basis points below the one-year loan prime rate, currently at around 2.34%. The initial loan-to-value ratio of the asset collateral is about 70%, which is higher than the prevailing market standard of 30-60%.