Following its first loss in twenty years, China Vanke Co. is beginning to raise red flags regarding its ability to pay back debt.
Vanke Faces A Business Difficulty
Vanke's financial difficulties serve as a warning sign for the real estate catastrophe in China, demonstrating how even the best developers have fallen victim to the unheard-of property slump. Even though Vanke has avoided defaulting thus far, its problems may outweigh the chaos caused by defaults at competitors Country Garden Holdings Co. and China Evergrande Group because of its ties to the country's economic and government-backed institutions.
Since home sales fell sharply in August and further price declines are predicted, China's housing rescue program, announced in May, is beginning to wane. Worries have grown in recent weeks due to several unsatisfactory consumer company revenue reports and a downgrade to UBS Group AG's advancement estimate for China. According to a growing consensus, the country could fall short of its economic growth target of about 5% in 2024, as indicated by the downgrade.
Vanke, a state-owned company based in Shenzhen, has been one of the few financially troubled developers that has not yet failed during the downturn. In Hong Kong, courts will hear winding-up proceedings for Shimao Group Holdings Ltd. and Country Garden, and the former massive Evergrande has been directed to liquidate.
Vanke's Financial Report Outlook
For the six months ending June 30, the company reported a monetary loss of 9.85 billion yuan, its first half-yearly loss since 2003. Compared to the company's July upper lineup, that is higher and represents a yearly revenue of 12.2 billion yuan from the previous year.
Considering that Vanke dropped 362 million yuan in the initial three months, its loss in the subsequent quarter indicates a severe blow to the company's finances. Since that time, as prices and sales have declined, the market slowdowns in China have worsened. Developers are being forced to offer steep discounts to entice buyers as local governments are becoming less involved in setting the prices of new housing developments.
Vanke's Projection: A Default or Not
Bond buyers are betting that even though Vanke's longer-term perspective is less certain, it is not currently in danger of defaulting. Moody's Ratings downgraded Vanke to B1 last month, having had the developer at an investment-grade rating as recently as March—four notches below junk status.
Bloomberg intelligence professionals Hui Yen Tay and Daniel Fan estimate that Vanke has a 14 billion yuan financing shortfall if leases to be paid are taken into account. They note that the business may acquire secured debt and sell more assets, and that funding could close that gap.
The public debt of Vanke, which develops for the rest of this year, is only 2 billion yuan, according to Chief Executive Officer Zhu Jiusheng's statement on Friday. The company has informed certain investors that it has sufficient funds to pay back a yuan bond due on September 6, based on the Bloomberg story from last week. Bloomberg's statistics show that Vanke has 128.5 billion yuan in outstanding public bonds and financing, with no dollar obligations due this year.
China Vanke Stock Technical Analysis
In the daily chart of Vanke stock price, the recent price trades lower and found support at the 3.66 support level after forming a bullish break of structure.
In the volume structure, the largest activity level is above the current price, which signals ongoing bearish pressure. If that happens, bullish pressure with stable momentum might come after overcoming the high volume line.
Based on the daily market outlook of China Vanke, a daily candle above the 4.92 resistance level could be a conservative bullish approach, where the main aim would be to test the 8.84 Fibonacci Extension level.
On the other hand, a minor upside pressure with a valid bearish rejection from the 4.92 to 5.00 zone could extend the downside correction and test the 3.66 low.
