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Chinese developer Vanke’s bonds have been downgraded by Moody’s in the latest outbreak of stress across the country’s troubled property sector.
Vanke, the second-largest developer in China by sales, is state-backed and had retained investment-grade ratings despite a wave of defaults in the sector since the 2021 collapse of China Evergrande.
The company has in recent weeks become the focal point of a property slowdown that has piled pressure on policymakers in Beijing seeking to boost confidence in the world’s second-largest economy.
Moody’s Ratings withdrew the company’s investment-grade issuer rating, downgraded other bond ratings and placed them on review for further downgrade on Tuesday evening. It said it expected the company’s “credit metrics, financial flexibility and liquidity buffer” to weaken over the next 12-18 months.
The rating agency pointed to “declining contracted sales”, which it estimated had fallen 40 per cent in the first two months of the year from a year ago to Rmb34.5bn ($4.8bn) and “rising uncertainties over its access to funding”.
China’s property sector, which typically accounts for more than a quarter of economic activity, has struggled for more than two years with construction delays and developer funding woes after a government crackdown on leverage. New home prices in major cities have fallen month on month in every month since October, according to National Bureau of Statistics data.
Issues at Vanke, which is partly owned by the metro in the southern city of Shenzhen, highlight the extent to which the sector’s weaknesses have spread to companies previously seen as highly stable and part of government efforts to revive activity.
Fitch Ratings downgraded Vanke in October from triple B plus to triple B, citing weaker than expected sales. Chinese property developers borrowed heavily on international markets in the past decade, but many have been locked in restructuring discussions and struggled to find sources of funding.
Moody’s said Vanke had about Rmb14bn of international bonds and Rmb20bn of onshore bonds coming due this year. One of its international bonds maturing in May 2025 is currently trading at 68.4 cents on the dollar, down from 82.7 at the start of the year.
Leonard Law, an analyst at Lucror Analytics in Singapore, said he expected a note maturing in June to be repaid due to “regulators’ efforts to co-ordinate financing support, as well as the company’s plan to prioritise the repayment of public bonds”.
“That said, we are cautious of Vanke’s longer-dated notes,” he added.
Vanke said its “current operating fundamentals are normal, its finance channels are stable and its refinancing is operating normally”.
Additional reporting by Cheng Leng and Andy Lin in Hong Kong
