By Clare Jim
HONG KONG (Reuters) -A management reshuffle at China Vanke that reinforced government support sent the developer's shares higher on Tuesday, as investors cheered the removal of near-term default risks and hoped it would bring some stability to the struggling property sector.
Analysts cautioned, however, that it remained to be seen to what extent the local government of Shenzhen is planning to help Vanke ease its financial stress, and said if its liquidity problems persist even after the state support, it could further hamper homebuyer confidence.
China Vanke, one of the best-known property company names in China and currently around a third owned by state-owned Shenzhen Metro, announced on Monday that Chairman Yu Liang and CEO Zhu Jiusheng have stepped down, as it forecast a record $6.2 billion net loss for 2024.
Xin Jie, the chairman of Shenzhen Metro, will become Vanke's chairman, pointing to increased state oversight and expectations the government would step in to contain any non-repayment risks as the developer faces several debt maturity deadlines this year.
The Shenzhen government has enough resources to promote Vanke's stable development through Shenzhen Metro, including injecting capital into the state-owned enterprise if necessary, the Nanfang Daily cited the local state-asset regulator as saying on Monday.
The newspaper also cited Shenzhen housing authorities and banks as saying that they will help Vanke's liquidity via asset disposals and financing.
Vanke's Hong Kong-listed shares closed up 2.1% on Tuesday, after opening 8.7% higher, while the Hang Seng Mainland Properties Index slipped 0.5%. China's stock markets were closed on Tuesday for the Lunar New Year holiday.
"'State support' has always been there; the question is 'to what extent'," JPMorgan analysts said in a research note, noting similar support was extended by Shenzhen authorities to Vanke in 2023.
JPMorgan analysts said the latest developments still do not involve equity investments or capital injections into Vanke, hinting that the objective of the state intervention is to avoid a public bond default and ensure completion of pre-sold homes, instead of returning Vanke into a growing developer.
Worries over Vanke's liquidity have intensified this month, with the developer struggling to raise funds through the disposal of assets and via bank financing amid a prolonged property market slump.
Shenzhen-based Vanke's interest-bearing debt stood at 331.3 billion yuan ($45.21 billion) at the end of June, with around $3.3 billion in public bonds maturing in the rest of this year.
Vanke's bonds gained on Monday after it said it would redeem its 2027 notes CN149057=SZ worth 1 billion yuan ($137.68 million) early in March, as investors were taking the early redemption as a sign it would have no problem meeting its more immediate obligations.
Investors are seeing Vanke's non-repayment risks as an acid test of homebuyer confidence, which has shown signs of stabilising in the past few months. They worry that banks could further shut off financing to the sector, squeezing developers - even state-owned ones - that have not defaulted.
Gavekal Dragonomics analyst Xiaoxi Zhang said in a report if the Shenzhen government maintains the current approach of providing only occasional, rather than consistent, financial support to Vanke, it would mean the company would continue to struggle and fail to build and deliver some pre-sold units.
"If (Vanke's) troubles continue even after the government has clearly assumed full control, (homebuyers) may question whether policymakers will allow other state-owned developers to fail to deliver pre-sold units as well," Zhang wrote.
"If Vanke’s financial struggles persist and start to sap homebuyer confidence — and if policymakers do not provide more support to the sector soon — there is a meaningful risk that market will resume its decline."