Vanke plans to reduce its debt by 100 billion in the next two years

Author | Cao Anxun

Editor | Zhou Zhiyu

With the support of the major state-owned shareholder Shenzhen Metro, Vanke quickly emerged from the short-selling storm and presented a solid financial report to prove its stability.

On March 28, Vanke released its 2023 annual financial report. The report shows that in 2023, Vanke achieved operating income of RMB 465.74 billion and a net profit attributable to the parent company of RMB 12.16 billion. Both revenue and net profit remained among the industry's best.

In the financial report, addressing the market's most pressing concern of navigating the current storm, Vanke also outlined several specific measures. Vanke stated that it will maintain positive operating cash flow at the management level, significantly increase its safety cushion, and firmly reduce leverage. The company plans to reduce interest-bearing debt by over RMB 100 billion in the next two years.

Furthermore, following Vanke's Chairman Yu Liang's RMB 10 million pay cut in 2022 as a gesture of sincerity, the management team including Yu Liang, President Zhu Jiusheng, and Chairman of the Supervisory Board Xie Dong, will voluntarily receive a monthly pre-tax salary of RMB 10,000 starting from the day the 2023 financial report is released.

From the financial data, Vanke's overall performance in 2023 was good, achieving a total sales volume of RMB 375.54 billion, ranking second in the industry. Despite pressure on sales and revenue, Vanke still achieved positive cash flow.

As of the end of 2023, Vanke had cash and cash equivalents of RMB 99.81 billion, covering interest-bearing liabilities due within one year; excluding advances for property sales, the asset-liability ratio was 65.5%, down from the peak of 76% in 2018 for five consecutive years, with 15 consecutive years of positive operating cash flow.

Moreover, despite significant overall financing contraction in the industry, Vanke continued to gain trust and support from major financial institutions.

In 2023, Vanke obtained nearly RMB 90 billion in new financing domestically and internationally, with domestic new financing amounting to RMB 76.6 billion and a comprehensive cost of new financing at 3.61%.

It is worth noting that in recent years, Vanke has closely followed the national real estate financial support policy direction and actively expanded new financing channels.

Since 2024, Vanke, including its subsidiary Indus Group, has already added RMB 10.9 billion in operating property loans, achieving a continuous optimization of its capital structure.

Currently, Vanke is at the forefront of real estate companies in financing through operating businesses.

China Jinli Indus REIT is in the quotation stage, Wanwei Logistics REIT has been officially listed on the exchange, and Long-term Apartment REIT is currently actively applying.

This indicates that Vanke is expected to be the only company in the industry to achieve breakthroughs in three types of operating REITs.

Industry insiders believe that the breakthrough in operating business REITs not only reflects the market's recognition of Vanke's transformation achievements over the years but also will help Vanke establish a complete business model loop of "investment, financing, management, and exit" for operating real estate, ensuring more efficient and sustainable operation of assets and funds, and safeguarding the sustainable development of operating businesses.

In fact, with the expansion and development of REITs, Vanke's advantages in operating businesses will become more prominent, providing richer sources for its short-term liquidity and long-term value growth In 2023, Vanke's commercial business achieved revenue of 9.11 billion yuan, a year-on-year increase of 4.6%. It has a total of 203 commercial projects in operation, with a total construction area of 11.58 million square meters. More than 90% of its commercial projects are located in first and second-tier cities.

Vanke's logistics business also performed well. Since starting its national warehousing network layout in 2015, its cold chain warehousing scale has remained the largest in the country. In 2023, it achieved revenue of 4.18 billion yuan, a year-on-year increase of 17.2%. Among them, cold chain revenue increased by 33.9% year-on-year.

Industry insiders believe that currently, the risk of default by real estate companies has further spread to mixed-ownership real estate enterprises, causing strong market concerns. Even the always stable Vanke has faced challenges to its confidence. However, from the annual report results, Vanke has still maintained its safety bottom line, built core capabilities around product services, and established a new development model for the real estate industry, which is not easy.

In addition to Vanke's own efforts, its ability to smoothly pass through 2023 with sufficient financing is inseparable from the strong support of its major state-owned shareholders.

In November 2023, when Vanke faced a short-selling crisis, the positive attitude of the Shenzhen State-owned Assets Supervision and Administration Commission played a key role in stabilizing market confidence. Subsequently, the Shenzhen State-owned Assets Supervision and Administration Commission also coordinated multiple state-owned enterprises to connect with Vanke, promoting the implementation of various specific support measures in a market-oriented and legal manner.

The strong support from Shenzhen Metro has continued into this year.

In January, Shenzhen Investment Holdings, a subsidiary of Shenzhen State-owned Assets, acquired 6.16% equity of Shenzhen High-Tech Investment from a Vanke subsidiary; In March, Shenzhen Metro plans to subscribe to Zhongjin Yinli Consumer REIT through a strategic placement, with a subscription amount of approximately 1 billion yuan, accounting for 29.8% of the total amount raised by the fund, providing blood transfusion to Vanke.

In the weak recovery market environment, Vanke will continue to adhere to the principles of "stability is paramount" and "cash is king" to safely navigate the current industry downturn.

Looking ahead to 2024, Vanke stated that it will focus on promoting the company's smooth transition mode and ensuring the safety bottom line.

On the sales side, Vanke will adhere to the goal of outperforming the overall trend, while maintaining positive cash flow at the operational level, and through bulk asset and equity transactions to realize the "reservoir", further thickening the safety cushion. Vanke expects to achieve transaction receipts of no less than 30 billion yuan in 2024.

In addition to the plan to reduce debt by over 100 billion yuan, Vanke also stated that it will actively integrate into the urban real estate financing coordination mechanism and promote the transformation of financing models. By then, Vanke will also be able to stabilize the confidence of creditors and investors.

As a leading mixed-ownership real estate company in the industry, Vanke is also expected to stop the trend of industry credit crisis spreading, and help boost industry confidence to stabilize and rise again