China Vanke’s Paths to Avoid Default Narrow After Failed Vote

China Vanke Co., the country’s last major developer to avoid default during an unprecedented real estate crisis, has little time left to keep debt failure at bay after creditors rejected a proposal to withdraw its looming bond payment.

Vanke, once China’s largest homebuilder by sales, said in a filing to the National Financial Market Institutional Investors Association late Saturday that it had failed to gain sufficient support for a plan to delay payment of a 2 billion yuan note due on Dec. 15. The proposal, along with two others on the ballot, would allow for a one-year extension. All three failed to secure the more than 90 percent support needed for passage.

This leaves Vanke in a position that underscores the broader challenges China faces in recovering from the property debt crisis, which is in its fifth year. Collapse, Country Garden Holdings Co. and led to record defaults, liquidations or restructurings at real estate giants such as China Evergrande Group. Policymakers last week vowed to intensify efforts to stabilize the housing market, but said the measures some economists say are needed to revive the sector, which is vital to the broader economy, fall short.

Vanke now must find money to pay off the bond by the end of Monday or within a five-business-day grace period, or reach a separate agreement to postpone the deadlines. If the grace period passes without any payment or other agreement being made, creditors may default; This is an unthinkable result.

Vanke has long benefited from many investors’ perception that authorities would help keep the company afloat. This belief is supported by the company’s largest shareholder, state-owned Shenzhen Metro Group Co. It was due to.

In fact, over 30 billion yuan of shareholder loans from Shenzhen Metro have provided a critical lifeline, helping the cash-strapped builder avoid defaults this year. But the support has come under scrutiny in recent months after Shenzhen Metro signaled plans to tighten borrowing conditions. This shift caused Vanke’s bonds to fall to deeply distressed levels.

A week ago, financial and state asset regulators in Shenzhen asked bondholders to be aware of Vanke’s current financial stress.

“The voting results showed that the regulatory guidance did not change anything, making it very difficult for Vanke to reach consensus with investors,” said Yao Yu, founder of credit research firm RatingDog. “It is quite possible that Vanke will make another proposal to increase the 5-business day grace period to 30 business days, thus making room for all parties.”

No creditors voted in favor of Vanke’s original plan to defer its local bonds, which would have meant a 12-month deferral of principal and interest payments without any down payment or installments.

Two other proposals announced later, which required the developer to add credit improvements and make interest payments on time, received support from investors who held 83.4% and 18.95% of the bond’s outstanding amount, respectively.

Calls to Vanke’s investor relations office went unanswered outside business hours.

Some market watchers, including Li Huan, co-founder of Forest Capital Hong Kong Ltd., have said a full-scale debt restructuring is inevitable because the extensions (even if Vanke approves them) will not solve the underlying problems.

This article was generated from an automated news agency feed without modifications to the text.