China’s real estate giant Vanke released financial information on Monday (April 29th), showing that the company has suffered losses for two consecutive quarters, exacerbating its financial difficulties caused by declining sales and tight cash flow.
According to the report released by Vanke on the Hong Kong Stock Exchange on Monday evening, the company reported a net loss of 362 million yuan in the first quarter (equivalent to about 50 million US dollars). This follows a loss of 1.459 billion yuan in the previous quarter (fourth quarter of 2023).
Vanke was the second-highest selling developer in China last year. However, recent negative news has plagued the company, and its financial situation has failed to reassure stock and bond holders.
Standard & Poor’s recently downgraded Vanke’s rating to junk status, highlighting the increasing cash shortage pressure faced by the developer with ties to the Chinese government, as well as pressure from investors. Moody’s and Fitch Ratings had also previously downgraded Vanke’s ratings.
There have been ongoing doubts about Vanke’s ability to avoid default. Despite Vanke’s management’s insistence that they can solve liquidity tightness using their own resources, Bloomberg senior journalist Shuli Ren pointed out that this is walking a tightrope, as progress in asset disposal by real estate companies has been slow. According to UBS, the developer managed to raise a mere 7.7 billion yuan in funds through these efforts this year.
Documents show that as of the end of March, Vanke’s cash and cash equivalents had decreased by 41% year-on-year to 80.8 billion yuan. Revenue also dropped by 10% year-on-year to 61.6 billion yuan.
According to S&P’s data, the developer will face a maturity wall in 2025, with 36.2 billion yuan in onshore and offshore bonds due. S&P estimates that by the end of 2023, the company will have 36.3 billion yuan in cash available.
In early April, J.P. Morgan downgraded its recommended rating on Vanke’s stock to “underweight,” citing the company’s challenging period of deleveraging and reliance on bank and state-owned enterprise support.
Unlike developers such as Evergrande and Country Garden, Vanke is a real estate company with ties to the Chinese government. Shenzhen Metro holds a 33.4% stake in Vanke, and Shenzhen Metro is a company held by the Shenzhen state-owned assets regulatory agency.
Given this background, whether Vanke will ultimately overcome its difficulties is a topic of great interest.