Vanke's Bond Delay Sparks Selloff, Shorting Hits 10-Year High

China Vanke's Short Interest Surges to Decade High

China Vanke's short interest has surged to a decade high in Hong Kong, with bearish bets reaching 25.1% of free float as of Monday. This comes after the developer sought a one-year extension on a 2 billion yuan note due this month. The move has intensified concerns about the firm's financial stability.

The company's request to delay repayment has sparked a selloff in both its bonds and shares, with some onshore bonds falling over 30%. The Hang Seng Mainland Properties Index dropped as much as 2.1% in early trading. Vanke's shares hit a record low, falling nearly 8.5% before recovering slightly to a 4.4% loss according to reports.

The broader market is now questioning whether Beijing will step in to support one of its largest real estate developers. The uncertainty has led to broader liquidity concerns and raised doubts about the government's role in the property sector.

Why the Standoff Happened

Vanke's request to delay paying the 2 billion yuan bond is the first in a 13.4 billion yuan wall of repayments stretching through mid-2026. The company has been struggling with severe liquidity pressures since late last year and has relied on shareholder loans from its largest state-owned backer, Shenzhen Metro Group. The company also pledged its 57.16% stake in a Hong Kong-listed property management unit to Shenzhen Metro as part of a framework allowing for loan support.

Analysts point to a combination of liquidity stress, collapsing bond prices, and doubts about a government rescue as key drivers of the shorting surge. The company is among the few major developers to avoid default so far in China's property crisis, but its financial commitments are now deemed unsustainable by S&P Global Ratings.

How Markets Reacted

Vanke's bond proposal triggered trading halts in three other onshore notes and led to a broad selloff in Chinese property developers. Shares of Vanke and its peers like Shimao Group and Longfor Group plummeted, underscoring investor fears of a continued downturn in the real estate sector.

The Hang Seng Mainland Properties Index dropped as much as 2.1%, while the broader Hang Seng Index rose slightly. Vanke's dollar-denominated notes due in 2027 stabilized after a 60% plunge last week, but onshore bonds remained deeply discounted.

What Analysts Are Watching

Industry analysts are closely watching how Vanke's bond restructuring will proceed and whether it will trigger further defaults across the sector. Morningstar analyst Jeff Zhang noted that the firm's proposed delay reflects "lingering liquidity crunch" and weak debt-servicing capabilities. S&P Global warned that the risk of a distressed restructuring for Vanke within the next six months has increased.

The developer has also faced loan rejections from at least two major Chinese banks, adding to concerns about access to liquidity. With recovery rates for distressed developers like Country Garden and Evergrande expected to be in the single digits, investors are bracing for a potential wave of defaults.