Vanke reports its first half-year loss in more than two decades

(Bloomberg) — China Vanke Co . reported a half-year loss for the first time in more than two decades and said most of its non-core investments are being sold as the developer tries to pay down debt amid the country’s unprecedented housing boom. crisis.

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Shenzhen-based Vanke posted a net loss of 9.85 billion yuan ($1.4 billion) in the six months ended June 30, the first since at least 2003. That’s higher than the reported upper range by developer last month and compares to an annual profit. of 12.2 billion yuan last year.

“The property impairment exceeded our expectations when we flagged it based on a preliminary calculation,” board secretary Zhu Xu said in a briefing after the results were released on Friday.

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China’s years-long housing crisis is weighing on the closely watched developer, as government support measures have yet to revive homebuyer demand. The state-backed company, once considered one of the top players in the industry, has been raising funds and looking to sell assets to ease investor concerns about liquidity stress.

Vanke’s loss marks a sharp decline in the second quarter, after losing just 362 million yuan in the first three months. Since then, the slowdown in the Chinese market has deepened as sales and prices continue to fall. Local authorities are reducing intervention on the prices of new residential projects, prompting developers to offer deep discounts to attract buyers.

The developer said it would continue to divest assets this year and plans to generate cash by issuing real estate investment trusts. It sold 20.4 billion yuan of assets in the first seven months, making progress on plans made earlier this year to “mitigate risks,” Zhu said. The developer has pledged to exit all non-core operations as it seeks to increase liquidity.

Refinancing gap

Vanke had a short-term refinancing shortfall of about 12 billion yuan at the end of June due to an increase in long-term debt due within a year, according to Bloomberg calculations based on company data. It is the first time the company’s cash balance has failed to cover its maturing debt in a year since at least 2014.

However, the funding gap “could be covered by access to funding,” Bloomberg Intelligence analysts Daniel Fan and Hui Yen Tay wrote in a note late Friday. “It could also divest assets, including the stake in GLP Pte, and raise more secured debt.”

The story continues

Vanke’s refinancing risks remain even after securing new bank loans, Moody’s Ratings wrote in a note this month. The firm downgraded the developer’s ratings further to junk. According to Moody’s, Vanke is likely to maintain its access to guaranteed bank loans, supported by its ties to the local government through its largest shareholder Shenzhen Metro Group Co.

Vanke will actively resolve its debt problems and ensure that “public debts are repaid on time,” according to his document.

For the rest of this year, it has only 2 billion yuan of public debt maturing, Zhu said. The firm notified some investors that it has enough cash to repay yuan bonds due on Sept. 6, according to a Bloomberg report this week. Vanke has no dollar bonds due this year.

Like many peers, Vanke prioritized cash growth over profitability, resorting to price cuts on his projects to reduce inventory. This was not enough to revive sales, which continued to decline in July. Moody’s now expects the developer’s sales to fall by about 30% this year, faster than a 25% decline it had previously forecast.

Chairman Yu Liang remains optimistic about China’s long-term housing prospects.

“China’s potential demand for home buying is still huge, even though it has declined from the peak,” Yu said. “It’s underrated.”

Other key figures from the results:

• Total liabilities rose to 331 billion yuan from 320 billion yuan as of Dec. 31

• Cash and cash equivalents fell to 90 billion yuan from 97 billion yuan as of Dec. 31

• Revenue fell 29 percent from a year earlier to 143 billion yuan

Vanke shares were near a record low in Hong Kong before the developer’s shares rose on Friday following a Bloomberg report that China is considering allowing homeowners to reduce their mortgage costs. Some of its longer-dated dollar bonds have recently recovered to above 50 cents, from below 40 cents in April, although they are still trading at deeply hurt levels.

(Updates with more balance sheet details, analyst and executive commentary.)

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