Vanke’s subsidiary, Shenzhen Yinli, recently sold its stake, marking another move by Vanke to offload prime assets in Shanghai and free up funds.
According to information from China’s business inquiry platform Tianyancha on September 4th, there was a change in ownership structure of Shanghai Songjiang Impression City’s operating entity, Shanghai Lion Enterprise Management Co., Ltd., with Shenzhen Yinli’s stake reduced from 50% to 2%, and RECO YIYUAN PRIVATE LIMITED’s stake increased from 50% to 98%.
As reported by “First Financial” on September 6th, RECO YIYUAN PRIVATE LIMITED is an enterprise under Singapore’s Government Investment Corporation (GIC), while Shenzhen Yinli is a subsidiary of Vanke. Following the equity transfer, GIC has become the owner of Songjiang Impression City. Industry insiders engaged in bulk asset transactions in Shanghai mentioned that the specific price of this deal was not disclosed to the public due to a confidentiality agreement as it involved cooperative shareholders.
Songjiang Impression City project is a collaboration between Vanke and GIC. Zhang Yuming, the head of Songjiang Impression City, revealed that in 2023, the foot traffic at Songjiang Impression City exceeded 11.2 million, with a daily average of over 30,000 people, and the sales revenue reached 2.23 billion yuan. This project is one of the most profitable commercial projects under Vanke, consistently ranking among the top performers within Vanke’s commercial projects. According to Vanke’s financial disclosures, the revenues of Songjiang Impression City in 2022 and the first half of 2023 were approximately 163 million yuan and 96.1943 million yuan, with occupancy rates of 94.42% and 98.31% respectively, ranking 9th and 7th among Vanke’s top ten commercial projects publicly disclosed. Industry experts estimate that Songjiang Impression City’s rental income in 2024 is expected to exceed 200 million yuan.
Since the beginning of 2024, Vanke has sold three significant commercial projects in Shanghai. The other two projects are Nanxiang Impression City MEGA in Jiading, Shanghai, and Qibao Vanke Plaza in Minhang, Shanghai. These two commercial projects are the top two money-making entities under Vanke.
Nanxiang Impression City MEGA project had operating revenues of 330 million yuan, 329 million yuan, and 193 million yuan in 2021, 2022, and the first half of 2023 respectively, with occupancy rates of 99.23%, 97.75%, and 99%, and among the top ten commercial projects publicly disclosed by Vanke, it ranked at the forefront, second only to Qibao Vanke Plaza in Shanghai. In July this year, Vanke sold 48% of the shares of Nanxiang Impression City MEGA to GIC, with rumors in the market suggesting a deal in the range of 2 billion for the 48% stake.
Another significant commercial project sold by Vanke was Qibao Vanke Plaza in Shanghai. According to Vanke, as of the end of June 2023, Qibao Vanke Plaza had an occupancy rate of about 97.71% and revenue of 213 million yuan, ranking first among their top ten commercial projects in operation (by revenue). This project was the most profitable project within the Vanke commercial system.
On February 20th this year, Link REIT disclosed that they acquired the remaining 50% stake of Qibao Vanke Plaza held by Vanke for approximately 2.384 billion yuan, achieving full ownership of the project and becoming the new owner, while Vanke exited. Link REIT revealed that as of the end of January this year, Qibao Vanke Plaza was valued at 7.06 billion yuan, while the transaction agreement price was 5.2 billion yuan. This equated to Vanke selling the shopping mall at a 20% discount.
The reason behind Vanke’s continuous sale of prime assets is seen as a strategic move to free up more capital, alleviate financial pressure, and enhance liquidity by offloading mature commercial office properties.
In 2024, in addition to these three significant commercial projects in Shanghai, Vanke has also sold premium assets such as the Shenzhen Bay Super Project.
At the mid-term performance conference held at the end of August this year, Vanke management disclosed that by promoting bulk transactions and revitalizing resources, Vanke has received over 10 billion in revenue in the first half of the year. In the following four months, Vanke has 19 projects in the negotiation process for sale.
Vanke, a leading real estate company in China, has faced a significant debt crisis due to its expansion through borrowing, declining sales in the Chinese real estate market, and a heavy debt burden.
On September 6th, Vanke released a briefing on August sales and recent additions, showing a contract sales amount of 17.24 billion yuan, a 23.75% decrease from the previous year’s 22.61 billion yuan, and a contract sales area of 1.227 million square meters, a 21.76% decrease from the previous year’s 1.576 million square meters.
From January to August, Vanke accumulated contract sales of 163.78 billion yuan, a 34.12% decrease from the same period last year, and a contract sales area of 120.76 million square meters, a 25.66% decrease from the same period last year.
In the first half of this year, Vanke recorded a net loss of 8.521 billion yuan, a 156.18% decrease year-on-year, with a net loss attributable to the parent of 9.852 billion yuan, a 199.82% decrease year-on-year.
Among the five Chinese real estate companies with sales exceeding a hundred billion yuan in the first half of this year, Vanke was the only one to incur a net loss.
Public information shows that one major issue Vanke currently faces is a shortage of cash to repay debt; moreover, its cash reserves have been continuously decreasing. By the end of 2023, Vanke’s cash reserves were approximately 18.4 billion yuan, a 59% decrease year-on-year. These amounts are insufficient to cover the 21.5 billion yuan (approximately 2.97 billion dollars) in public bonds due in 2024.
Vanke’s management admitted that the business earnings are insufficient to cover the rising interest on bank loans.
In March of this year, one of the world’s three major rating agencies, Fitch, downgraded Vanke’s long-term foreign currency issuer default rating from “BBB” to “BB+”, putting Vanke’s rating under negative watch. “BB+” is considered non-investment grade, commonly known as junk status. Fitch stated that downgrading Vanke’s rating to junk status reflects weak sales performance, while capital market volatility has limited the company’s financing channels.
With this, Vanke’s credit ratings have been downgraded to non-investment grade by all three major rating agencies, Moody’s, S&P, and Fitch.
Beijing-based senior economist Lin Hong expressed to Epoch Times that Vanke’s chances of self-rescue mainly depend on sales revenue. Currently, with fewer cards up its sleeve and no positive signs in the real estate market, Vanke’s prospects of surviving the economic winter are not optimistic. However, from the perspective of the Chinese Communist government’s operations, they might try to support Vanke as much as possible to prevent an immediate financial disaster.