Chinese real estate developer Vanke announced on Friday (August 30) that it incurred a net loss of 9.85 billion yuan (about 1.4 billion U.S. dollars) in the six months ending on June 30, marking its first half-year loss in over 20 years. This highlights the pressure this real estate giant is facing in trying to repay debts.
The latest data released on Friday also showed that Vanke experienced a year-on-year loss in the first half of this year, with a net profit of 9.87 billion yuan during the same period last year.
Vanke’s core loss in the first half of this year was 7.6 billion yuan (about 1.07 billion U.S. dollars). Core losses do not include the impact of foreign exchange and changes in asset values. In comparison, Vanke’s core profit in the same period last year was 8.7 billion yuan.
Vanke attributes its current losses to a decline in income and profit margins, increased provisions, as well as losses from financial investments and asset disposals.
Following a net loss of 362 million yuan in the first quarter, the total loss of 9.85 billion yuan in the first two quarters of this year signals a sharp downturn in Vanke’s performance in the second quarter.
China’s long-standing real estate crisis is affecting this highly watched developer. Local governments are reducing intervention in pricing for new residential projects, prompting developers to offer significant discounts to attract buyers. However, government support measures have yet to substantially boost housing demand.
Vanke was once considered a more stable company in the industry. Faced with the crisis in the real estate sector, the company has been raising funds and seeking asset sales to alleviate concerns among investors about liquidity pressures.
Earlier this month, Moody’s further downgraded Vanke’s debt rating to junk status, highlighting the increasing pressure on this state-owned developer amid cash shortages and declining sales.
In March, Moody’s downgraded Vanke’s corporate rating to junk. Bloomberg quoted Moody’s Senior Vice President Kaven Tsang as saying at the time, “The rating action reflects Moody’s expectation that Vanke’s credit metrics, financial flexibility, and liquidity buffers will weaken over the next 12 to 18 months as Vanke’s contracted sales decline in the context of a protracted weakness in China’s property market and increasing funding channel uncertainties.”
In early April, J.P. Morgan Chase downgraded its recommendation on Vanke’s stock to “underweight,” citing the challenges Vanke faces during a period of deleveraging and dependence on bank and state-owned enterprise support.
Unlike developers such as Evergrande and Country Garden, Vanke is a real estate enterprise with a background tied to the Chinese government. Shenzhen Metro holds a 33.4% stake in Vanke, and Shenzhen Metro is a company held by the state-owned assets supervision and administration commission of Shenzhen.
Given this context, whether Vanke can ultimately overcome its difficulties is a topic of widespread concern.
(This article references reports from Bloomberg and Reuters)