New World, Vanke Debt Moves Shake Up China’s Property Sector

New World Development Co and China Vanke Co, two of the most closely watched distressed Chinese property names, are again forcing investors to reckon with the fallout from the country's real estate crisis.

About two weeks after New World said it wasn't undertaking a liability management exercise, the Hong Kong distressed builder unveiled a US$1.9 billion (RM7.98 billion) bond swap plan that includes haircuts for creditors — particularly holders of its perpetual bonds.

Creditors are still parsing the details of the proposal but some of the company's perpetual notes made gains on Monday, including its US$700 million 4.8% perpetual bond, which saw its biggest daily jump in almost two years, rising 4 cents to 43 cents, according to data compiled by Bloomberg.

Meanwhile, some of Vanke's dollar bonds slumped after its largest shareholder tightened terms for loans to the company, a move that may signal a shift in government-led financial support. The builder's dollar bond due in November 2029 was poised for its biggest fall on record, according to Bloomberg-compiled prices.

The latest developments highlight deepening liquidity challenges facing highly leveraged developers in mainland China and Hong Kong, as weak sales persist despite government support measures. China's new-home sales extended a slump in October while, in Hong Kong, the commercial real estate continues to face challenges.

While New World's debt swap proposal means creditors would need to take haircuts ranging from 9% to as high as 50% and asks holders to forgo accrued interest on perpetual bonds, some analysts don't think it's a bad plan. The offered price is in line, or in some cases, higher than the secondary market levels of its bonds. The new notes would also give holders exposure to the builder's prized Victoria Dockside complex, giving them first-ranking access to the asset as collateral.

There is still a possibility that bondholders could negotiate with New World to improve the terms of the debt swap offer, such as asking for higher upfront cash or some accrued perpetual bond distribution payouts.

For the exchange offer to succeed, participation has to meet a minimum threshold: at least US$500 million for newly issued perpetual securities and at least US$100 million for fresh notes due in 2031. Bondholders would have until Dec 2, though they can get better prices if they agree to the plan by Nov 17, according to an exchange filing.

As for Vanke, a key concern for credit investors is how the company will navigate its looming bond maturity wall. The developer, once China's largest by sales, has around RMB22 billion (RM12.99 billion) of onshore bonds due or potentially facing early redemption requests by September 2026, according to a Moody's report last month.

Vanke has been relying on liquidity support from its largest shareholder, Shenzhen Metro Group Co, for months. The state-owned firm has extended more than RMB20 billion in loans to Vanke, most of which were previously unsecured. Shenzhen Metro is now requesting collateral for the borrowings and imposing a tentative limit for financing support.

Source: Theedgemarkets