[BEIJING] China Vanke reported a wider first-half loss, underscoring ongoing challenges even after the developer received a financial lifeline from its hometown government in Shenzhen.

Vanke posted a net loss of 12 billion yuan (S$2.1 billion) in the six months ended Jun 30, widening from a 9.9 billion yuan loss a year earlier. That’s close to the upper end of the range flagged by the developer last month.

China’s prolonged property crisis has continued to weigh on Vanke, with the country’s home sales deteriorating further in July and new-home prices falling at an accelerated pace. Despite increased financial backing from its largest state shareholder, the broader weakness in the housing market is adding to pressure on the developer’s bottom line.

“Financial support from Vanke’s largest shareholder, Shenzhen Metro, is unlikely to significantly alleviate the developer’s liquidity stress or improve its prospects,” Bloomberg Intelligence analysts Kristy Hung and Patrick Wong wrote in a note on Monday (Aug 18).

The figures suggest losses in the second quarter slightly narrowed from the 6.3 billion yuan incurred in the first three months. It follows heavy write-offs since the final quarter of last year.

The results stemmed mainly from declines in home settlements and suppressed gross margins, Vanke said in the filing.

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Other key figures:

• Revenue declined 26 per cent to 105.3 billion yuan

• Total cash slipped to 69.4 billion yuan

• Vanke’s unfinished residential inventory was worth about 257 billion yuan at the end of June

Chinese officials have taken a number of steps to stabilise Vanke’s operations and finances since the start of this year. Some of the firm’s dollar bonds fell about 40 per cent to deeply distressed levels in January before an official from Shenzhen Metro Group took over as chair and local governments vowed to “pro-actively support” Vanke’s operations.

The state-owned shareholder has since offered multiple loans totalling about 23.9 billion yuan so far this year, according to the filing. The loans are all earmarked to help Vanke repay the principal and interest on publicly issued bonds.

Financial challenges

The latest disclosure showed that Vanke still had about 364 billion yuan of interest-bearing borrowings as of June, 43 per cent of which will mature within 12 months. Bank loans accounted for 72.5 per cent of total borrowings.

The builder has sought to extend some of its domestic bank loans by as much as 10 years, sources familiar told Bloomberg last month. Such long-term extensions, if successful, could offer the company some breathing room on its repayment obligations.

Despite state backing, Vanke is not completely out of the woods. Fitch Ratings in May downgraded the developer’s long-term issuer default score by one notch to CCC+, a rating that indicates a default is a possibility. Fitch said that Vanke’s sales drop has been worse than expectations.

Vanke still has nine billion yuan of onshore bonds maturing this year, Bloomberg-compiled data shows. Its largest maturity wall will be 2026, when about 24 billion yuan of onshore bonds and loans come due.

After Vanke repaid a dollar bond due in May, it has no offshore public debt due before 2027. BLOOMBERG