China Vanke debt downgraded to ‘junk’ status by Moody’s as liquidity concerns mount amid tumbling property sales

Moody’s Ratings withdrew China Vanke’s “Baa3” issuer rating, replacing it with a “Ba1” corporate family rating, which judges the debt obligations of the parent corporation and its subsidiaries to be “speculative and subject to substantial credit risk”.

Moody’s also downgraded the bonds and medium-term notes of Vanke Real Estate, a subsidiary.

“The rating actions reflect Moody’s expectation that China Vanke’s credit metrics, financial flexibility and liquidity buffer will weaken over the next 12-18 months because of its declining contracted sales and the rising uncertainties over its access to funding amid the prolonged property market downturn in China,” said Kaven Tsang, a senior vice-president at Moody’s.

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The downgrade comes as investors have been dumping shares and bonds of Vanke over the past few weeks on liquidity concerns, amid reports that the developer, previously seen by the market as financially sound, was seeking debt maturity extension with some insurers.

The ratings agency estimated that China Vanke’s contracted sales declined by around 40 per cent to 34.5 billion yuan (US$4.8 billion) in the first two months of 2024, after falling 10 per cent to 376 billion yuan in 2023.

China Vanke’s falling sales will undermine its revenue and operating cash flow generation over the next year to 18 months, according to Moody’s.

Moody’s placed the company’s ratings on review for possible further downgrades.

“The review for downgrade reflects our concern over the company’s ability to recover its sales and improve its access to funding, as well as maintain an adequate liquidity buffer for its ongoing refinancing needs,” said Tsang.

China Vanke will have some 14 billion yuan of offshore bonds and 20 billion yuan of onshore bonds coming due or becoming puttable by June 2025, Moody’s said, adding that its use of internal resources to repay these maturing debts will weaken its liquidity buffer.