Headquartered in Shenzhen, Vanke is also one of the country's largest real estate developers, and is both rigorous and widely acclaimed. Even when peers are in trouble, they still have investment value and have been the darlings of investors in uncertain times.
This month, Vanke's share price in Hong Kong has risen by 66% β close to record lows β Shenzhen fell as much as 52%, which is the biggest drop since December 2022. Vanke's renminbi bonds have reached their lowest level. Its 2027 expiration 3975% U.S. dollar bonds** over 4 cents against the U.S. dollar, to 495 cents.
Recent reports have also fueled the timing of the company's ongoing negotiations with lenders to delay payments as builders face concerns about their ability to repay their debts. In December, at least two state-backed Chinese insurers agreed to extend some of Vanke's private debt.
In fact, Vanke is reliable. Sales have held up relatively well during this unprecedented real estate downturn, down just 10% in the first 10 months of last year, while Country Garden Holdings Co(Country Garden) fell by 47 percent. Refinancing channels also appear to be open to builders. In the third quarter of last year, it raised 2 billion yuan from new corporate bond issuances (2.).$7.3 billion), with a coupon rate of just over 3%.
Vanke is somewhat reliant on pre-sales, typically purchased within 18 months to two years before it is built. The developer has about $408 billion in contractual liabilities, which mainly consist of deposits paid by consumers for unfinished homes. That's about a third of the company's total liabilities β 50% less than Country Garden, which was seen as a default on dollar bonds in October.
Vanke is also perfectly positioned to benefit from any policy, especially if homebuyers become picky about which developers they deal with. The company has excellent access to financing as it is backed by strong state entities, including the Shenzhen Metro Group. Vanke is also relatively cautious. Last year, its total liabilities were $135 trillion yuan ($184 billion), just 5% higher than in 2018. Evergrande's liabilities soared 55% to 244 trillion yuan, it is fighting to win the support of creditors for the restructuring.
The way investors are looking at things now is this: Vanke's 104 billion yuan in cash flow doesn't look that big. Unless the broader real estate market stabilizes, even the best developers will not survive. In October, contracted sales to the top 100 developers fell again after a slight improvement in September, down 68 percent compared to pre-2019 levels, according to Real Estate Information7%γIn the first nine months of last year, Vanke's operating profit was only 39 billion yuan, down 25 percent from the same period last year.
Personally, I think that Evergrande's leverage is inherently high, and Country Garden's problem is in third- and fourth-tier cities, and Vanke, unlike other builders, has always been professionally managed. Back in 2018, its chairman, Yu Liang, told employees that winter was coming for the industry and that the company's goal was to "survive." Last year, he doubled down on his warning that the "** era" of real estate is over. His ** was prescient.
Vanke has been boiling for three years, and Vanke bonds can make money by holding them for another two years. Keep this article and come back in 2 years.