Risks and challenges ahead
As China's credit-fueled property boom gradually lost its steam, housing prices have fallen across many regions for the first time in years. As a result, many real estate corporations in the country, most notably China Evergrande and Country Garden, have run into serious financial difficulties owing to a combination of outstanding liabilities and unfinished apartment compounds, colloquially known as “rotten-tail buildings” in China.Thanks to China Vanke's more conservative business strategy over the years, the company's financial situation remains relatively healthy compared to its peers. Yet its total liabilities still exceeded 1.35 trillion yuan by the end of 2022, while the overall recession in the housing market also led to a notable contraction in the company’s sales performance. The price of China Vanke's U.S. dollar bonds also fluctuated dramatically in late October of 2023, with the bonds due in 2027 trading at less than half of their face value at their lowest point.
A combination of these factors led credit rating agency Moody's to downgrade China Vanke's issuer rating and outlook in November 2023. The company will continue to be subject to considerable challenges ahead amidst the downward pressure on China's overall economic performance and the lack of market confidence in the property sector, especially outside the major urban centers.
Fragmented shareholding structure and SOE background
Unlike most other major Chinese property developers such as Country Garden and Sunac China Holdings, China Vanke's shareholding structure has long been relatively fragmented, which prevents its founder, Wang Shi, from having overriding authority in the company. After successfully stemming a hostile takeover of the company by Baoneng Group, a less well-known real estate player in China between 2015 and 2016, China Resources Holdings, a central state-owned enterprise (CSOE) remained as Vanke's largest shareholder until 2021, when the conglomerate sold its stake to another state-owned enterprise (SOE), the Shenzhen Metro Group.The fragmented shareholding structure, along with its SOE background, makes it easier for Vanke to obtain financial resources and policy support than many other Chinese real estate companies, which makes it less susceptible to the current market environment and more resilient to risks.
