Moody’s Downgrades China’s Vanke Amid Real Estate Sector Concerns

A construction site of Vanke in Shanghai, China. Reuters-Yonhap

Moody’s, an international credit rating agency, has downgraded Vanke, China’s second-largest real estate developer’s credit rating to “non-investment grade.”

According to Bloomberg News, on the 11th (local time), Moody’s announced that it had downgraded Vanke’s rating from the lowest investment grade, Baa3, to the non-investment grade, Ba1.

Moody added that further downgrades are being considered.

Carven Chang, Senior Vice President of Moody’s, explained, “The downgrade reflects the anticipation that credit indicators, fiscal flexibility, and liquidity buffers will weaken over the next 12 to 18 months.”

This is due to concerns about declining sales and increased uncertainty about funding accessibility as China’s real estate downturn is prolonged.

With companies like Hengda and Bi Guiyuan experiencing financial difficulties, the credibility of China’s real estate sector is expected to weaken as Moody’s lowers Vanke’s credit rating.

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Despite these concerns, Vanke rebutted to Reuters, “The company’s operations and debt repayments are normal, and the funding route is stable.” They argued that they could control the shock of the credit rating downgrade.

Reuters reported that Chinese authorities had asked major banks for financial support to alleviate Vanke’s economic difficulties and urged the company’s creditors to extend the debt maturities.

After reports last week that Vanke was facing financial pressure and had requested some creditors to extend debt maturities, stocks and bonds are under selling pressure.

At a press conference held during the Two Conferences (National People’s Congress and Chinese People’s Political Consultative Conference), Ni Hong, Minister of Housing and Urban–Rural Development, said, “Real estate companies that will go bankrupt should go bankrupt.” Still, the Chinese central government has unusually intervened in the Vanke issue. This is because the Chinese government owns a portion of Vanke’s shares. 33.4% of Vanke’s shares are owned by Shenzhen Metro, the state-owned asset supervision agency of Guangdong Province, Shenzhen.