China Vanke boss acknowledges ‘pressure’ as 2023 profits slump amid liquidity distress rumours

Net profit came in at 12.16 billion yuan (US$1.7 billion) versus 22.68 billion yuan in the same period of 2022, according to a filing by Vanke made to the Hong Kong stock exchange on Thursday night.

Core profit, which excludes the impact of foreign exchange and changes in the value of assets and financial instruments, stood at 9.79 billion yuan, plunging by more than 50 per cent from the same period the previous year.

Revenue fell 7.6 per cent to 465.7 billion yuan from a year earlier, while the company’s net debt ratio rose by 11 percentage points to 54.7 per cent.

“Although we have stressed the awareness of surviving very early, it seems now we need to strengthen the awareness of crisis [management],” chairman Yu Liang said during a post-results press conference on Friday morning.

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“A company that wants to survive in the fragile market … also needs to be fully prepared if there is an unexpected downfall.”

Vanke, the second-largest Chinese developer by sales, said it aims to ensure a bottom line of safety and offload debt of more than 100 billion yuan in the next two years, as it tries to smoothly transform its business model.

As of the end of 2023, it had interest-bearing liabilities of 320.05 billion yuan, of which 62.42 billion yuan is due within one year, it said.

The company declared that it might not distribute a dividend for 2023, as the industry is “undergoing an in-depth adjustment”, although the final plan needs further approval.

The lacklustre earnings report came after the company was rumoured to be facing liquidity distress earlier this month, roiling the market as it was one of the few remaining big state-backed developers to enjoy a solid credit rating.

However, Moody’s and Fitch Ratings, two of the big three rating agencies, have downgraded the firm to “junk” this month, citing a weakened sales performance and curtailed funding access. S&P has not cut Vanke’s ratings yet, but issued a downgrade warning two weeks ago.

The firm’s contracted sales fell 9.8 per cent year on year to 376.1 billion yuan in 2023, according to its filing. The developer’s woes have persisted since the start of this year, after it saw its combined contracted sales fall at an annual rate of 43 per cent to 33.5 billion yuan in January and February.

“There is some pressure, but we can get through,” Zhu Jiusheng, Vanke’s president and CEO, said during the briefing when asked about the debts coming due this year.

He said the company will have sufficient funds to meet the challenges of debt repayment this year, citing support from the Shenzhen State-owned Assets Supervision and Administration Commission (SASAC), its major shareholder.