A trillion-dollar asset management giant strongly supports Vanke.

Authors | Zhou Zhiyu, Cao Anxun

Editor | Zhang Xiaoling

The real estate market in 2024 did not see a small spring, instead triggering a new round of panic, causing the "top student" Vanke to face short-selling again.

At this critical moment, the trillion-dollar asset management giant, New China Asset, stepped forward.

In response to the market rumors of Vanke's "non-standard debt extension" and negotiations with New China Asset, New China Asset quickly responded on March 3, stating that the rumors were false, and the company has maintained normal business cooperation with Vanke.

Clearly, New China Asset, an institution with assets under management exceeding trillions, has a clear stance. It will continue to support Vanke.

The attention drawn by the recent fluctuations in Vanke's stocks and bonds has surpassed previous levels. This reflects a change in market sentiment, indicating that the real estate sector urgently needs to break the "consensus expectation."

Such lingering emotions have made Vanke, a company with unique significance in the real estate industry, to some extent a symbol of the industry, also unable to escape the grasp of the bears.

Fortunately, current concerns about Vanke are mostly emotional factors rather than fundamental changes. The recent recovery in the Shanghai and Shenzhen property markets seems to indicate that there is still sunshine after the "late spring frost." With its resilience, Vanke can overcome the current difficulties.

Next, Vanke will continue to take action to break the market's pessimistic expectations. This is also the driving force for optimism and respect for common sense for Yu Liang and others in the real estate industry who are still persevering. They aim to navigate through the current fog and find the light ahead.

Panic

After moving out from the endorsement of the Shenzhen State-owned Assets Supervision and Administration Commission last year, the market's recovery gave Vanke a period of stability.

In the fourth quarter of last year, Vanke achieved sales of over 30 billion for three consecutive months, dispelling some doubts in the market. The market also expected that with policy support, sales would further improve, and Vanke would be able to accelerate its recovery.

Unexpectedly, the new housing market encountered a "late spring frost" at the beginning of the year. Data from CRIC shows that in the first two months of this year, Vanke achieved a total sales volume of 33.45 billion yuan, a year-on-year decrease of 41.65%. Although better than the 51.6% decrease of the top 100 real estate companies, Vanke's sales volume still ranks second in the industry.

However, the significant drop in absolute value, combined with the overall market's low pressure, still raises concerns about Vanke's financial situation. On March 1, rumors emerged in the market about Vanke negotiating with New China Asset on the "non-standard debt extension."

New China Asset's major shareholder, New China Insurance, is an important creditor of Vanke. New China Insurance's 2023 interim report shows that it participated in three phases of Vanke's debt plan, with a total investment of approximately 5.302 billion yuan; New China Insurance also holds 120 million shares of Vanke A shares through dividend insurance accounts, accounting for 1.01% of its total share capital, making it the tenth largest shareholder of Vanke.

If such a heavyweight insurance institution were to withdraw its investment, the pressure on Vanke's cash flow can be imagined.

Emotions have been stirred up, and the bears, seizing the timing of the February real estate sales data announcement, have resurfaced the previous rumors for speculation.

Over the past month, the face value of Vanke's multiple US dollar bonds has been continuously declining. Subsequently, abnormal trading in domestic bonds also emerged, with the yields of some domestic bonds soaring from less than 10% at the beginning of January to over 20% recently. Bonds with outstanding amounts of 800-1,000 million yuan are mainly traded in small amounts of tens of thousands of yuan. On the stock side, Vanke's short position in the Hong Kong stock market has climbed from around 8% at the beginning of the year to over 11% recently.

The short-selling model that has plagued real estate companies for the past two years has once again succeeded with Vanke. The short sellers have been successful and profitable.

However, an AMC professional told Wall Street News that insurance funds are different from trust funds and other funds. Their funds have a long term, and unless there is a change in the overall strategy of insurance funds, they will not easily withdraw their investments as long as dividends and interest payments are made on time each year. In addition, it is relatively normal for real estate companies and insurance funds to discuss repurchases, and they usually renew before maturity.

Wall Street News also learned from institutional investors that in late January, Vanke had communicated with institutions about the specific funding arrangements for the repayment of domestic and foreign bonds this year.

Vanke's debt pressure this year is not too great. The amount of domestic bonds due in 2024 is about 9.3 billion yuan, and there are about 10.5 billion yuan in public bonds due overseas. Vanke stated that it will ensure the timely repayment of debts in various ways, including using foreign currency funds abroad, raising funds through dividends or equity repurchases from overseas companies, as well as syndicated loans or debt swaps.

As for the $630 million overseas bonds due on March 11, "even without relying on bank loans, the company's existing overseas financial resources are sufficient to deal with this debt."

Vanke is also actively raising funds. Since the end of January, Vanke has sold 6.16% of its equity in Shenzhen High-Tech to Shenzhen Investment Control, and has transferred 50% of the equity of the most profitable project in its commercial system, Shanghai Qibao Vanke Plaza, to Link.

These asset disposal actions and optimization of long-term equity investments were planned by Vanke early on and are being carried out according to the timeline.

Shenzhen State-owned Assets has also become a strong support behind Vanke. In the future, Shenzhen State-owned Assets will continue to step in and take over some of Vanke's equity in urban renewal projects and non-real estate business.

In addition, with the decrease in the scale of construction in 2024, Vanke expects that this year's expenditure pressure will significantly decrease, and construction expenditure will also decrease accordingly, leading to a reduction in the cash flow needed to maintain cash balance. This also means that even if monthly sales drop to around 20 billion, Vanke can still maintain its cash flow balance.

From these perspectives, Vanke's debt issues are not a concern in the short term, and the current series of actions are also to prevent the "uncertainty" in the market and to prepare for the winter ahead.

Counterattack

Vanke has become a target for short sellers, indicating that with three out of the four former real estate giants gone, there are not many targets left for short sellers to profit from in the current market. Vanke once tried to create a crack in Longbridge but faced a strong backlash. By 2025, Longbridge has no offshore syndicated loans due for repayment; and by 2027, no USD-denominated bonds will mature. The strategy of using "short essays" and the bond market to influence market sentiment has failed at Longbridge.

Short sellers can only turn their attention to blue-chip real estate companies like Vanke and Evergrande, testing the strength of these companies themselves and the support of their shareholders.

However, Vanke has not responded aggressively in the market, which is why short sellers have been successful. Insiders close to Vanke admit that even with buybacks, it is difficult to stabilize stock and bond prices in the current market conditions, which would drain the company's funds. Currently, Vanke's focus is on using its funds wisely to improve operations and explore new financing opportunities.

According to Wall Street News, since the fourth quarter of last year, Vanke's financing has mainly relied on bank loans. Currently, bank loans account for about 60% of Vanke's total interest-bearing liabilities, while the proportion of corporate bonds is about 25%. The rest mainly involves cooperation with insurance funds, which are all proceeding as usual.

Vanke's Chairman, Yu Liang, expressed his relief that the operational service business, which has finally passed the "tuition fee" stage, is continuously becoming a new financing channel for Vanke, positively impacting its profits and cash flow.

On March 1st, a REIT composed of assets from three logistics park projects under Vanke's subsidiary, Wanwei Logistics, was accepted by the Shenzhen Stock Exchange and officially entered the issuance stage, planning to raise 1.159 billion.

Some institutional investors stated, "From the fundraising documents, it can be seen that Vanke holds many valuable assets, such as the three underlying projects for this REIT issuance, with a comprehensive appreciation rate of 39.67%. Vanke also has many assets that are undervalued compared to book value. With the opening of REITs, the value of these assets can be further unlocked."

This was also the excitement for Yu Liang regarding the opening of REITs. He had called for investors and analysts to reassess Vanke's market value. In his view, the importance of REITs to real estate operations is similar to that of mortgages to residential development, closing the loop of the business model.

Wall Street News also learned that in addition to Vanke's commercial real estate and logistics project REITs, Vanke's long-term apartment REITs are also actively applying.

Facing the reshaping of the real estate industry by REITs, Vanke is also seizing the opportunity of the era through intensive personnel adjustments, aiming to transform itself from a developer to a real estate service operator.

At the beginning of the year, Vanke merged its seven regional commercial businesses and the Inlity Group into the newly established Commercial Business Division. Led by Vanke veteran Sun Jia, this move demonstrates Vanke's ambition to make a big splash in the commercial real estate REITs market.

With more REITs projects approved and expanded, incorporating projects from Vanke's asset pool, Vanke can complete its transformation in the future. Similar to Hong Kong developers, the revenue from development business and operational service business will be close, with the operational service business becoming the main contributor to profits. Before that, Vanke needs to have more reserves on hand to ensure its survival. At a meeting within Vanke in early January, Yu Liang remained optimistic about the future, using many specific cases to illustrate that although the current situation is difficult, there are solutions, but only by doing better can one survive.

At a time when many real estate giants are retiring or falling, Yu Liang remains optimistic, consistently conveying the message that even in darkness, one must move towards the light.

Refusing to lie down, bravely fighting, this is also the support for the continuous progress of human civilization over thousands of years. Both inside and outside the industry, many people hope that Vanke can be the first to tide over the difficulties, becoming a model of "survival" and leading the industry in its recovery.

Those with a common goal walk the same path. The support from the trillion-dollar asset management giant, New China Asset, and the backing of the Shenzhen State-owned Assets Supervision and Administration Commission, are affirmations and support for Vanke. Together, there is no winter that cannot be crossed.