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China’s real estate sector, already grappling with significant challenges highlighted by the downfall of Evergrande, faces further troubles. The property market, experiencing a substantial decline in home sales and prices, could see worsening conditions.
One of the immediate trigger could be trouble brewing at Vanke, one of China’s largest developers. Moody’s has downgraded the credit rating of Vanke, signaling ongoing difficulties within the national property sector.
Vanke, traditionally viewed as a stable entity, has encountered significant financial strain, leading Moody’s to lower its credit rating to “Ba1”, a level associated with “substantial credit risk”.
The agency reported a sharp decrease in the company’s contracted sales, which dropped by 40% to 34.5 billion yuan ($4.8 billion) in the initial months of the year.
Moody’s anticipates that the uncertain operating and financing landscape will continue to negatively impact Vanke’s contracted sales, funding availability, and liquidity.
Vanke under the microscope
As per a report in Insider, Vanke has come under scrutiny as it faces financial strain, evident from attempts to extend debt maturities with insurers. With investors offloading Vanke’s shares and bonds, concerns about its liquidity have intensified. Despite efforts to reassure investors, including a recent $630 billion note repayment, the pressure on Vanke underscores the systemic importance of such large developers to the national economy, the Insider report said.
Charlene Chu, a senior analyst at Autonomous Research, indicated, “I think, at the moment, there’s an assumption in the market that the levels of activity have come down so much that things can’t get much worse, but that’s not really true.” Chu emphasized that China remains “very much in the middle of a collapse in the property sector and this could still get uglier than it already is.”
Vanke’s situation is particularly delicate, given its size and influence; a potential default could significantly erode confidence in China’s property sector, particularly among state-owned entities. Chu noted, “I think that could really lead to a loss of confidence in almost every developer in the country if state-owned entities aren’t safe.”
Moreover, the unfolding crisis, while primarily domestic, holds the potential for broader global economic repercussions, adding layers of uncertainty to an already fragile market environment.
(With inputs from agencies)
One of the immediate trigger could be trouble brewing at Vanke, one of China’s largest developers. Moody’s has downgraded the credit rating of Vanke, signaling ongoing difficulties within the national property sector.
Vanke, traditionally viewed as a stable entity, has encountered significant financial strain, leading Moody’s to lower its credit rating to “Ba1”, a level associated with “substantial credit risk”.
The agency reported a sharp decrease in the company’s contracted sales, which dropped by 40% to 34.5 billion yuan ($4.8 billion) in the initial months of the year.
Moody’s anticipates that the uncertain operating and financing landscape will continue to negatively impact Vanke’s contracted sales, funding availability, and liquidity.
Vanke under the microscope
As per a report in Insider, Vanke has come under scrutiny as it faces financial strain, evident from attempts to extend debt maturities with insurers. With investors offloading Vanke’s shares and bonds, concerns about its liquidity have intensified. Despite efforts to reassure investors, including a recent $630 billion note repayment, the pressure on Vanke underscores the systemic importance of such large developers to the national economy, the Insider report said.
Charlene Chu, a senior analyst at Autonomous Research, indicated, “I think, at the moment, there’s an assumption in the market that the levels of activity have come down so much that things can’t get much worse, but that’s not really true.” Chu emphasized that China remains “very much in the middle of a collapse in the property sector and this could still get uglier than it already is.”
Vanke’s situation is particularly delicate, given its size and influence; a potential default could significantly erode confidence in China’s property sector, particularly among state-owned entities. Chu noted, “I think that could really lead to a loss of confidence in almost every developer in the country if state-owned entities aren’t safe.”
Moreover, the unfolding crisis, while primarily domestic, holds the potential for broader global economic repercussions, adding layers of uncertainty to an already fragile market environment.
(With inputs from agencies)
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