China Vanke's CEO, Chairman Resign Amid Growing Liquidity Worries

China Vanke Co., Ltd., one of China's largest real estate developers, is facing mounting liquidity concerns as its CEO and chairman, Zhu Jiusheng and Yu Liang, respectively, have resigned amid a growing debt crisis. The company's shares and bonds have been under significant pressure, reflecting investor doubts about its ability to repay debts and maintain liquidity.



Vanke's Hong Kong-listed shares closed 5.8% lower on Monday, marking its biggest decline in about six weeks, while its Shenzhen-traded shares plunged the most in more than three months. Its 3.15% 2025 due dollar notes were indicated 1.7 cents lower at 83.3 cents as of 16:40, reflecting investor doubts about full redemption. China's housing rescue package is losing steam as home sales slump deepened in August and prices are expected to plummet further, exacerbating concerns about Vanke's financial health.



Vanke's earnings report on Friday showed how much the extended housing slump is taking its toll on the company. The developer posted a net loss of 9.85 billion yuan for the six months ended June 30, its first semi-annual loss since at least 2003. That's higher than the upper range flagged by the firm in July and compares with an annual profit of 12.2 billion yuan last year. Vanke's loss signals its finances took a sharp hit in the second quarter, considering it lost just 362 million yuan in the first three months. The slowdown in China's market has deepened since then, as sales and prices continue to fall. Local governments are dialing back intervention over pricing of new residential projects, driving developers to offer deep discounts to lure buyers.



Bond investors are betting Vanke isn't at immediate risk of default, though its longer-term outlook is less certain. Moody's Ratings, which had Vanke at investment grade as recently as March, downgraded the developer to B1 last month, four notches into junk territory. Vanke to Exit Non-Core Business, Divest Assets for Liquidity Vanke faces a 14 billion yuan funding gap if leases payable are included, according to Bloomberg Intelligence analysts Daniel Fan and Hui Yen Tay. That hole could be plugged by access to financing, they said, adding that the company can dispose more assets and raise secured debt.

For the remainder of this year, Vanke has only 2 billion yuan worth of public debt that matures, Chief Executive Officer Zhu Jiusheng said Friday. The firm has notified some investors that it has enough cash to repay a yuan bond due Sept. 6, according to a Bloomberg report last week. Vanke doesn't have dollar bonds due this year and has a combined 128.5 billion yuan of public bonds and loans outstanding, according to data compiled by Bloomberg.

What Bloomberg Intelligence says:
"Vanke could survive the current down cycle, given its ability to access funding from state-owned banks like Industrial and Commercial Bank of China and China Construction Bank."
-Analysts Daniel Fan, Hui Yen Tay
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Vanke and the other developers may get some relief from a plan to allow homebuyers to shift to banks offering lower mortgage rates, as Bloomberg reported last week. Despite the first-half loss, Vanke Chairman Yu Liang remains optimistic on China's long-term housing outlook.

"China's potential home-buying demand is still huge, even though it has fallen from peak," Yu said. "It's underestimated."

Despite the challenges facing China Vanke, the company's long-term prospects remain promising, given its strong brand and extensive landbank. However, the company must address its liquidity concerns and improve its financial health to ensure its survival in the competitive real estate market. By diversifying its business model, enhancing its corporate governance, and exploring strategic partnerships, Vanke can better position itself to navigate the challenges ahead and capitalize on the opportunities in the Chinese real estate market.