Temporary relief for Vanke as investors approve grace period extension but reject repayment delay.

One of China’s biggest residential property developers, Vanke, managed to escape a bond default on Monday after onshore bondholders approved an extension of a grace period on a 2 billion yuan ($284 million) loan repayment, although they again rejected Vanke’s proposal for a one-year repayment extension, according to sources with knowledge of the situation.

This bond, which matured on December 15, had already used up the initial grace period of five trading days. However, under the new terms of the deal, the bondholders agreed to an extension of the grace period to 30 trading days, giving Vanke until January 27 to rework the terms of repayment. This would result in a default if an agreement was not reached.

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The bondholders rejected Vanke’s proposal for extending the repayment schedule by a year, although the state-supported real estate firm promised to pay the delayed interest by the end of the original grace period. Even the previous attempt for a repayment extension was turned down.

Analysts said that this grace period extension gives Vanke some time to negotiate with creditors, which eases immediate market turmoil, but reflects that there are still severe problems in China’s property market.

The problem highlights how vulnerable China’s property market remains, which has struggled since China Evergrande triggered a debt crisis in the sector in 2021. It was predicted that problems in Vanke could dent consumer confidence for potential property purchasers in some Chinese cities where property prices have recently started to stabilize. At its peak, its contribution to China’s economy stood at around a quarter.

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In another vote, Vanke is seeking approval from bondholders to defer payments of the principal and interest on its onshore 3.7 billion yuan bond that is due on December 28 by an additional year and to extend the grace period on another of its bonds from 7 to 30 days of trading. Voting began on Monday and continues through Thursday.

Vanke Group’s Shenzhen-listed shares ended Monday with a gain of 0.6 per cent, while its Hong Kong-listed shares retreated from early gains to close 1.9 per cent lower. The price of its yuan-denominated bonds remained unchanged.

Last week, credit ratings firm Fitch lowered the credit rating of Chinese property giant Vanke by two notches to ‘C’, mainly due to its default on debt repayment. The credit ratings firm even warned that it will lower Vanke’s credit rating to “restricted default” if it fails to make payments within the grace period.

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