S&P Global Ratings Downgrades China Vanke Credit Rating Amid Continuing Real Estate Market Slump
China’s real estate market slump is showing no signs of abating, with real estate developer China Vanke facing increasing pressure as a result. Vanke, whose largest shareholder is a state-owned subway operator, has managed to avoid the worst of the industry’s downturn over the past two years, outperforming giants like China Evergrande and Country Garden.
However, on Wednesday, S&P Global Ratings downgraded Vanke’s credit rating by three notches to BB+, the highest level below investment grade, and gave it a negative outlook. The downgrade reflects Vanke’s high leverage, potential for further sales declines, and potential obstacles to planned asset sales.
The downgrade led to a sell-off of Vanke’s shares and bonds. The company’s dollar-denominated bonds due in May 2025 fell about 3% of their face value, with the bond losing about 13 cents since the beginning of the year and currently trading at 68% of face value. Vanke’s Hong Kong-listed shares also fell 4.3%, consolidating a 42% decline since the start of the year.
Daniel Tan, portfolio manager at Grasshopper Asset Management, noted that Vanke is considered a bellwether for government support for the real estate industry. However, investors seem hesitant to rely on government intervention, with Vanke losing about $40 billion in market value since the end of 2019.
The downgrade and sell-off underscore the ongoing challenges in China’s real estate market and the impact on major players like China Vanke. The market slump shows no signs of slowing down, leaving companies like Vanke vulnerable to further pressures and uncertainties.