China’s troubled state-owned property giant Vanke Group has announced plans to reduce its debt by 100 billion yuan (US$13.8 billion) over the next two years. This comes as sales have dropped and profits have nearly halved in 2023, amidst a deepening crisis in the sector.
Despite these challenges, Vanke’s CEO, Zhu Jiusheng, emphasized in a recent earnings press conference that the company’s core capabilities remain unchanged. He mentioned that the recent downgrade of Vanke’s credit rating by Moody’s to “junk” had limited impact, and highlighted the company’s strong partnership with 26 banks for risk management.
However, Vanke reported an increase in net debt ratio to 55% last year, with 73% of its assets financed by creditors, indicating a high level of leverage. The State Council intervened by securing financing of up to 80 billion yuan from 12 banks for Vanke, deviating from the usual approach of letting insolvent developers face their own challenges.
Analysts attribute this intervention to Vanke’s state-owned background, as the company’s largest shareholder is the Shenzhen Metro Group. This aligns with President Xi Jinping’s policy of promoting state enterprises over the private sector.
Meanwhile, other distressed real estate firms like Evergrande Group and Country Garden Holdings have faced financial difficulties, with Evergrande receiving a liquidation order from the Hong Kong High Court and Country Garden facing similar challenges.
Vanke has secured additional funding for projects in various Chinese cities, following Beijing’s guidelines on approved projects that financial institutions should support. Zhu mentioned that addressing concerns on capital deployment, project financing, and cash flow will strengthen support from banks.
Edited by Taejun Kang and Mike Firn.