In a tumultuous week for China Vanke, shares and bonds of the property giant took a hit following a downgrade by S&P and the revelation that a company executive is under investigation. The Shenzhen-listed stock of China's second-largest developer by sales fell 1.8%, hitting its lowest point since May 2014, while its Hong Kong shares also dipped to a record low.
S&P's decision to cut Vanke's rating three notches to BB+ plunged the firm's credit into 'junk' territory, citing concerns over the company's "weakening competitive position and surging leverage." This move made S&P the last major credit-rating firm to downgrade Vanke's status to 'non-investment grade', attaching a 'negative outlook' to the new rating.
Adding to Vanke's woes, Chinese media outlets reported the detention of Xiao Jin, the general manager of Vanke's Jinan branch, for a police investigation. While Vanke confirmed Xiao's cooperation with authorities on "personal matters," the news has exacerbated investor apprehensions about the firm's stability.
Vanke's financial challenges have been mounting, with a reported 50.6% plunge in 2023 core profit and sales in early 2024 falling short of its monthly break-even point. Efforts to secure new loans and extend debt maturities have been underway, amidst a broader property market slump in China.
In a statement, Vanke reassured that the company's operations were proceeding normally, with another executive taking over Xiao's duties. The company also highlighted ongoing coordination with Shenzhen authorities and state firms to secure financing solutions.
Despite these assurances, S&P projected continued declines in sales over the next 12 months, forecasting contracted sales to drop by 25% to 28% from the previous year, significantly down from a peak in 2020. This pessimistic outlook follows a series of downgrades from other rating agencies, with Moody's and Fitch also relegating Vanke's credit to 'junk' status amid liquidity concerns.
The investigation involving Xiao Jin, who is said to be cooperating over "personal reasons," has cast a shadow over the company, particularly following denials of allegations by Shandong-based partners involving the company and its chairman. The allegations had included serious charges such as money laundering and tax evasion, contributing to the fragility of investor sentiment towards Vanke.
Analysts like Shujin Chen from Jefferies Financial Group have noted the significant impact of the investigation news on Vanke's market perception, underscoring the heightened scrutiny and uncertainty surrounding the developer's future amidst a challenging sales environment.
