The State Council, which acts as China's government, is coordinating efforts to support China Vanke, several sources said, adding that financial institutions have been asked to act quickly. The authorities are endeavoring to stabilize a real estate sector beset by a debt crisis, marked by defaults among the country's largest real estate companies, with support measures including enhanced financing for developers of certain projects.

China Evergrande and Country Garden, precedents to be avoided

However, the central government's response to the difficulties of individual companies has been rather rare. While it did intervene on behalf of Country Garden, most other cases were dealt with at local level or left to their own devices, including former market leader China Evergrande, now facing liquidation.

Unlike these two promoters, Vanke enjoys the support of the local authorities in the form of a 33.4% equity stake held by the Shenzhen region. Moreover, China Vanke is one of the few Chinese property developers whose creditworthiness is still considered investment grade by international rating agencies. Any doubts about debt could destroy market confidence.

Shares in China Vanke, now the sector's second-largest player, lost ground on Monday, before rebounding after the rumor broke. They remain down 7% over the last few sessions. However, the fact that the central authority is directly concerned with the promoter's fate could also turn on a few red lights.


Rumors suggest that financial regulators have met with financial institutions and creditors. "Banks must secure financing for China Vanke, insurers must extend private debt maturities, (each party) must guarantee repayment of public bonds," said a Reuters source. Vanke declined to comment, as did the authorities.

A group under scrutiny

"The central government wants to show that it is actively intervening to save the market. It's softening its stance, so banks should do the same," explained Alvin Cheung, associate director at Prudential Brokerage in Hong Kong. Cheung pointed out that the authorities had failed to stabilize the market after Evergrande's default, and if Vanke defaulted after Country Garden, there would be no confidence or new liquidity left in the market.

Another person briefed on the situation said that some major domestic commercial banks had made repayment conditions more stringent for Vanke, increasing its financial pressure. Total new bank loans to the developer in the fourth quarter of last year fell by more than half compared with the same period a year earlier, this person said. Another source told Reuters last week that creditor insurers, including state-owned Taikang Insurance, PICC Property and Casualty and New China Life Insurance, had received requests from Vanke to extend debt maturities. To ease repayment concerns, Vanke announced on Friday that it had deposited the funds needed to repay $630 million in US dollar bonds maturing on Monday.