Vanke Bonds Crash as Shenzhen Metro Tightens Rescue Loan Strings

China Vanke Co.'s bonds plummeted after its state-owned shareholder, Shenzhen Metro Group Co., tightened financing terms for a significant portion of its rescue loans. The move came as the developer reported a deeper third-quarter loss, exacerbating concerns about its financial health. According to a statement released late Sunday, Shenzhen Metro has requested collateral or pledges for 20.37 billion yuan (approximately $2.86 billion) worth of previously unsecured loans. This represents a significant portion of the 30 billion yuan in rescue loans extended to Vanke by its largest shareholder in 2023. The company has been struggling to recover from a decline in property sales and rising debt levels. The tightened financing terms have sent shockwaves through the market, with Vanke's bonds slumping to a record low. The yield on its 2027 bond rose to 14.4%, a 2.5 percentage point increase from the previous day, making it one of the highest-yielding bonds in the Chinese property sector. This indicates that investors are demanding a higher premium to compensate for the increased risk of default. Vanke's financial struggles have been well-documented, with the company reporting a net loss of 4.5 billion yuan in the third quarter, a significant increase from the 2.3 billion yuan loss reported in the same period last year. The company's debt-to-equity ratio has also risen to 1.44, a level that is considered high by industry standards. The Chinese property sector has been facing significant challenges in recent years, with a decline in property sales and rising debt levels among developers. The government has implemented various measures to stabilize the sector, including interest rate cuts and tax relief. However, the sector remains under pressure, with many developers struggling to recover from the downturn. The implications of Shenzhen Metro's move are significant, as it may set a precedent for other state-owned shareholders to tighten financing terms for their developer affiliates. This could have a ripple effect throughout the sector, making it more difficult for developers to access capital and potentially exacerbating the financial struggles of already vulnerable companies. In the short term, Vanke's financial health remains a concern, and the company's ability to comply with Shenzhen Metro's new financing terms will be closely watched by investors. However, the long-term implications of this move are less clear, and it remains to be seen how the sector will respond to the tightened financing terms.