As spring burgeons with vitality and rejuvenation, Vanke, a prominent player in the real estate sector, finds itself shrouded in turmoil reminiscent of a relentless winter's chillJust as the company was attempting to emerge from the shadow cast by allegations from Bairun Real Estate about “Yuliang manipulating Vanke for personal gain,” new troubles aroseOn April 10, its Jinan general manager, Xiao Jin, was taken in for questioning by relevant authoritiesIn response to this unexpected occurrence, Vanke claimed that Xiao was cooperating with investigations due to personal reasons, while the company continued its operations under the interim leadership of Jin Yabin at the Jinan branchVanke stated that the investigation is ongoing and emphasized that information released by the relevant departments should prevail.

Compounding their challenges, on the very same day, Vanke faced a severe financial downturn as its stock prices plummeted, marking an unprecedented low not seen since 2015. The company's major bonds also experienced declines, all while S&P downgraded Vanke’s long-term credit rating from “BBB+” to “BB+,” with a “negative” outlook

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This seismic shift has drawn heightened scrutiny from the marketplace.

Vanke, an enterprise that once heralded the onset of a foreboding phase termed the “black iron era” in real estate, now finds itself back under the market's unforgiving spotlight due to a series of adverse developments.

01 Stock Price Hits New Low, Credit Rating Downgraded

Data from Wind Information revealed that after hitting a new low on April 10, Vanke A's stock fell further by 4.57% to close at an even lower valuation by April 12, while Vanke Enterprises (2202.HK) saw a decrease of 7%. In concert with the drop in stock value, the condition of Vanke's bond market is similarly grim

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As of April 12, the bonds “22 Vanke 04,” “21 Vanke 04,” and “20 Vanke 04” dipped by over 2%, settling at 58 yuan, 63 yuan, and 75 yuan respectively, with additional bonds also reflecting declines exceeding 1%.

The market’s reaction stems from both macroeconomic factors affecting the real estate sector since the start of the year and the disappointing annual performance of Vanke, compounded by recent shareholder disputes in YantaiAccording to Yuan Chengjian, director of Jiancheng Think Tank, these combined factors have prompted a downward spiral in Vanke's stock price, tarnishing its long-maintained image as a market leader.

In a report dated April 10, S&P highlighted that given the persistent slump in the real estate industry, Vanke’s contract sales may decline further over the next twelve months

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They downgraded Vanke’s credit rating and that of Vanke Real Estate (Hong Kong) Limited from “BBB” to “BB,” marking a negative outlook associated with the downgraded ratings.

What is particularly alarming is that this isn’t Vanke’s first confrontation with a rating downgrade within the preceding six months; both Fitch and Moody’s have similarly diminished their ratings for the company.

The consecutive downgrades, combined with the scrutiny over the whistleblower incident, and the compounding pressures within the stock and bond markets have left Vanke ensnared in a whirlwind of public opinion, constantly under the scrutiny of market observersYuan Chengjian stressed that Vanke’s commentary on industry developments has generally been perceived as forward-looking

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However, beyond addressing its disputes with transparency, the company must also proactively clarify its debt repayment strategies, sales expectations, and prospects for industry growth to cultivate trust among stakeholders, thereby aiding the company in overcoming adversities.

02 Holding “Grain” to Solve Immediate Challenges

The challenges faced by Vanke have undoubtedly amplified its pressure regarding debt repaymentContinuous scrutiny of its debt issues remains prevalent, with their 2023 annual report indicating a staggering total liability of 1.1 trillion yuan, of which interest-bearing debt amounts to 320.5 billion yuanA substantial portion of this consists of medium- to long-term liabilities, with 62.42 billion yuan maturing within the next year.

Reports suggest that as of April 10, Vanke had 31 active bonds in China amounting to 54.556 billion yuan, while it also held six offshore bonds totaling $2.593 billion

These figures underscore the company's colossal debt burden.

Research from Huatai Securities further outlines the distribution of Vanke's debt pressuresBy March 6, it was revealed that the primary focus of Vanke's debt stress would extend through the second and third quarters of the year, accounting for approximately 22.4 billion yuan, with a notable 11.6 billion yuan of public debt due in the second quarter and 10.8 billion yuan slated for repayment in the third quarter.

The past thirty years have been hailed as the golden age of rapid development within China’s real estate sectorHowever, as noted by Yuan Chengjian, the quick growth period has exposed multiple issues of irregular practices, unmanageable operations, and mismatched staffing within real estate companies, including Vanke

Such issues have stemmed from reduced revenues brought on by the industry downturn, subsequently unraveling into contentious disputes.

When reflecting on Vanke’s debt pressures, Yan Yuejin, the research director at E-House China Research and Development Institute, conveyed that due to a contraction in sales volumes, the company's capacity for debt absorption has diminished significantly, rendering the debt pressure more pronounced and necessitating heightened vigilance.

The announcements and annual report released by Vanke further validate the precarious position they currently occupyStatistics indicate that from January to March 2024, the company achieved a notable year-over-year contraction of 42.81% in both the contract sales area and contract sales amount

Over the preceding year, Vanke’s revenue and net profit also respectively shrank, with sales dropping roughly 10%, landing at a total of 376.12 billion yuan.

In attempts to mitigate these drawbacks, Vanke communicated to reporters their commitment to remaining proactive in sales and striving to outperform the market’s prevailing trends, maintaining a lead in returning funds.

Despite the overwhelming challenges from external factors, Vanke still relishes a financial cushion; by the end of 2023, the company reported holding cash reserves of 99.81 billion yuanWhile this figure appears meager when juxtaposed against 1.1 trillion yuan in debt, it may yet prove vital in addressing immediate financial obstacles

Nevertheless, concerns loom regarding whether Vanke's revenues will continue to descend, potentially failing to meet rigid expenditures inclusive of its debts.

In light of the current market dynamics, Vanke must adopt a vigilant stance, implementing various measures to counter potential risksYuan Chengjian asserts that the immediate priority for Vanke should be to refine its operational management framework, rigorously assess and eliminate irregular or unnecessary subsidiaries and business unitsConcurrently, internal compliance optimization must be undertaken to rectify existing regulatory loopholes, effectively defusing potential risks.

Furthermore, it is imperative for the company to address ongoing disputes proactively, aiming to curtail the dissemination of misinformation while explicitly articulating their corporate stance.

Lastly, robust collaborations with central and state-owned enterprises should be pursued, leveraging Vanke’s mixed-ownership model