 "The Chinese government is reportedly coordinating support for the beleaguered property major, China Vanke. Source: Reuters File")
The Chinese government is making a rare intervention to help the beleaguered property giant, China Vanke. The State Council, the country’s national Cabinet, is coordinating a support effort for the residential real estate developer China Vanke.
Sources told Reuters that Beijing has asked banks to enhance financing support to the firm. Over and above this move, the Xi Jinping-led Chinese government has also requested financial institutions to make swift progress.
Such support was nowhere in sight even for real estate titans like China Evergrande– previously at the helm of the country’s property market.
During the National People’s Congress concluded recently, authorities signalled that struggling real estate developers may not receive significant bailouts. AP quoted Housing and Urban-Rural Development Minister Ni Hong as saying, “regarding severely insolvent and financially unsustainable real estate companies, bankruptcies should be handled according to legal procedures, and reorganisations should be carried out as required.”
Why is China Vanke receiving generosity that much bigger property companies did not?
Here are three potential reasons behind this move:
1. State-backed company
Unlike China Evergrande or Country Garden, China Vanke has government backing. Shenzhen Metro, a company held by Shenzhen’s state asset regulator has a 33.4 per cent stake in the company.
2. Investment-grade credit rating
China Vanke is among the last few property developers in the country that still have an investment-grade credit rating from international firms like Standard & Poor (S&P) and Fitch. Moody’s, however, has recently withdrawn its Baa3 rating for the company.
Impact Shorts
More Shorts3. Preserving market confidence
China’s property sector accounts for nearly a third of the country’s economic activity. If a state-backed company that has relatively decent rating faces debt repayment headwinds, it could further decimate investor confidence in China’s property sector. That would be a bad for the government, which is already facing the heat from a substantial decline in tax revenues from property sales.
Vanke’s cash crunch is being closely watched by investors looking to gauge how much the Chinese government is willing to do to help the last few property giants in the country avoid default.
With inputs from agencies