China's Vanke in Talks to Sell Logistics Firm Stake to GIC

China's embattled property developer, China Vanke Co. Ltd., is in advanced talks to sell a controlling stake in its logistics unit, VX Logistics, to Singapore's sovereign wealth fund, GIC, according to a source familiar with the matter. The potential deal comes as Vanke grapples with a severe liquidity crisis, with over 10 billion yuan ($1.39 billion) in offshore debt due in the next month and a significant drop in sales.

Vanke's next yuan-denominated bond repayment deadline is Jan. 27, with a total of $3.4 billion due this year. The state-run Economic Observer reported last Thursday that Vanke's CEO had been detained and the developer could be subject to a takeover or reorganisation. The report was deleted within hours of its publication.

A deal for the VX Logistics stake sale to GIC could be finalised as soon as next month, said the source, who could not be named as the information was private. The Shenzhen-based developer's 81.6% stake in VX Logistics was worth about 27 billion yuan ($3.7 billion) in 2022, according to corporate registry records that then valued the whole company at $4.5 billion.

Vanke raised a 20 billion yuan syndicated loan facility in May 2024 by pledging shares in VX Logistics, a source said at the time. Financial news outlet REDD first reported on Wednesday about the advance talks between Vanke and GIC.

VX Logistics posted revenue of 1.94 billion yuan ($266.24 million) in the first half of 2024, according to Vanke's interim report. The government in the southern city of Shenzhen, where Vanke has its headquarters, is stepping up meetings and coordination with local state enterprises on plans to contain the company's debt risk and on asset disposals, Reuters reported on Tuesday.

Some analysts say a debt default is inevitable this year without fresh liquidity support, as Vanke's monthly sales plunge below break-even levels and it encounters difficulties in borrowing from banks and disposing assets. The potential sale of Vanke's stake in VX Logistics to GIC could provide the much-needed cash infusion to help the developer navigate its financial challenges and avoid a default.

In conclusion, China Vanke's potential sale of its stake in VX Logistics to GIC is a strategic move aimed at addressing its liquidity crisis and ensuring its survival in the face of the ongoing property market slump. The deal, if finalised, could have significant implications for both Vanke and the broader Chinese real estate market, as well as the logistics sector. The involvement of GIC, a sovereign wealth fund, could also have geopolitical implications and signal a vote of confidence in China's logistics sector.