China’s leading real estate enterprise, Vanke Group Co., Ltd. (Vanke), plans to sell all of its equity in the logistics company Prologis in a move rumored to be aimed at raising funds. This signals that Vanke’s financial chain is still under immense pressure, pushing the company to continue selling assets for cash.
Recent market rumors indicate that Vanke is considering selling its 21.4% stake in Prologis, but the specific price remains unknown. Vanke has not yet responded to inquiries from the public regarding this potential sale.
Prologis was acquired by Vanke in 2018 in a joint venture with Prologis management and a consortium including Hillhouse Capital, Hopu Investments, and China Construction Bank for a total price of 79 billion yuan.
The decision to sell its subsidiary Prologis reflects Vanke’s strategy to alleviate financial pressures through asset sales. Since the end of last year, Vanke has been accelerating its asset sales, including transferring management rights of cooperative hotels, selling equity in non-listed companies, and offloading prime commercial properties in major cities.
According to incomplete statistics, in November 2023, Vanke sold the management rights of several Banyan Tree hotels for 480 million yuan; in January 2024, it sold a 6.16% stake in Shenzhen Innovation Investment for 1 billion yuan; and in February 2024, it sold a 50% stake in Qibao Vanke for 2.384 billion yuan. Qibao Vanke, located in Shanghai, was one of the top ten shopping centers by sales in Shanghai last year.
Public information shows that as of the end of 2023, Vanke had about 18.4 billion yuan in cash, a 59% decrease year-on-year. This amount is insufficient to cover the 21.5 billion yuan (approximately 2.97 billion US dollars) of debt due in 2024. Furthermore, S&P has indicated that Vanke will face a substantial amount of debt coming due in 2025. Hence, facing financial pressure, Vanke’s massive selloff of assets for cash is not surprising.
As a real estate company, Vanke’s main revenue comes from property sales; however, due to the downturn in China’s real estate sector, Vanke’s sales have also been declining. According to data from the China Index Research Institute, sales revenue, national new housing construction area, and urban residential transaction area of China’s top 100 real estate companies declined by 17.3%, 20.4%, and 20.6% respectively year-on-year. In comparison, Vanke’s sales revenue dropped by less than 10% in 2023 and over 40% in the first quarter of 2024.
Vanke’s management recently admitted that the operational income is insufficient to cover bank loan interest payments.
In March of this year, one of the world’s three major rating agencies, Fitch Ratings, downgraded Vanke’s long-term foreign currency issuer default rating from ‘BBB’ to ‘BB+’, placing its rating on negative watch. ‘BB+’ is a non-investment grade, also known as junk status. Fitch indicated that downgrading Vanke to junk status reflects the company’s weak sales performance and the restrictions in capital market volatility on its financing channels.
Vanke has now seen its credit rating downgraded to non-investment grade by all three major rating agencies – Moody’s, S&P, and Fitch.
Besides financial issues, Vanke has also faced troubles recently. Since the beginning of this year, Vanke has been accused by its partners of tax evasion and misuse of funds. Additionally, the news that the general manager of Vanke Jinan has been taken away for investigation has further fueled negative public opinion about Vanke.
Amidst these negative developments, Vanke’s stock price has been continuously declining, hitting new historic lows. On April 18, Vanke’s stock price dropped to 6.87 yuan per share, the lowest in nearly nine years. As of the market close on that day, Vanke’s total market value was less than 85 billion yuan.
Vanke’s annual report for 2023 showed a 7.56% year-on-year decrease in revenue and a 46.39% decrease in net profit.
Internet user “幸中y8” commented, “Vanke has only one way out, bankruptcy restructuring. With the loss of trust from shareholders, investors, and customers, home sales will encounter serious problems, unless there is a significant price reduction. However, reducing prices will bring serious consequences to Vanke, leading to insolvency. Therefore, bankruptcy restructuring is the only option.”
Another user, “羿甜mV,” stated, “Vanke’s problems are not caused by the overall economic environment; rather, the unfavorable environment has exposed the company’s true state. Because of the chaos, they have taken advantage of the situation! It’s surprising that the overall economic environment has become an excuse for all their failures.”
As of the close of A-share trading on April 23, Vanke was trading at 6.57 yuan per share, a decrease of 1.75%, with a total market value of 78.385 billion yuan.