By Clare Jim and Xie Yu
HONG KONG (Reuters) - Shares and bonds of Vanke jumped on Tuesday after China's No.2 property developer said the impact of a Moody's (NYSE:MCO) ratings downgrade on its financing activities was "controllable", though some analysts remain concerned over its longer-term liquidity.
Moody's on Monday downgraded Vanke to "junk" from investment grade ratings, by assigning 'Ba1' corporate family rating (CFR), and said all of Vanke's ratings would be on review for downgrade.
In a statement to Reuters on Tuesday, Vanke said the "company's current operation and refinancing are normal and financing channels are stable". It also said the impact of a ratings downgrade on its financing activities was "controllable".
Hong Kong-listed shares of China Vanke, the country's second-largest property developer by sales, closed up 10.3%, while its Shenzhen-listed shares rose 5.7%. the property indexes in each market rose 8% and 5%, respectively.
Its 2025 bonds were bid at 71.252 cents on the dollar as of 1000 GMT, compared to 67.638 cents in Asia morning trading, according to data by Duration Finance. Its 2029 bonds were bid at 44.406 cents, up from 43.045 cents.
The Moody's action came after Reuters earlier reported Monday that China had asked banks to enhance financing support for state-backed Vanke and called on creditors to consider allowing private debt maturities to be extended.
Chinese authorities are scrambling to stabilise a real estate sector in the throes of a debt crisis characterised by default among the country's biggest property firms, with support including boosting financing for developers of certain projects.
Vanke is one of the few remaining Chinese developers with investment-grade ratings. If another major rating agency such as S&P or Fitch follows suit, Vanke's dollar bonds would face the prospect of being dumped out of some of the world's most important investment indexes.
"The rating review only impacts its offshore financing activities which has been shut for a while now," said KT (NYSE:KT) Capital senior researcher Fern Wang. "The market has relatively muted responses to the potential action as the Vanke bonds have been traded as a junk bond for a while now."
WIDER DEBT CRISIS
Vanke's major creditor banks are considering a plan to swap bond holdings worth tens of billions of yuan in principal into secured debt, Bloomberg News reported on Tuesday, a move that would help the developer avoid a public default while giving banks collateral to protect against any potential losses.
The firm is also aiming to raise HK$4.5 billion ($575 million) via a syndicated loan in Hong Kong for its offshore prepayments, a source with direct knowledge of the matter told Reuters.
Vanke declined to comment on the report and the offshore borrowing.
Any repayment troubles at Vanke could dampen market confidence and worsen China's wider property debt crisis that has enveloped peers Country Garden and one-time market leader China Evergrande (HK:3333), analysts have said.
"The market is still concerned about Vanke’s long-term debts," said Li Gen, chairman of Beijing G Capital Private Fund Management Center LLP, which specialises in credit investment.
"The real pressure will kick in in the second half of this year. If without timely support from its shareholders, while home sales continue to be weak, Vanke will face draining liquidity."
Vanke has around 14 billion yuan ($1.95 billion) worth of offshore bonds and around 20 billion yuan of onshore bonds coming due or becoming putable through to June 2025, according to the rating agency.
Moody's said it expects Vanke's financial flexibility and liquidity buffer to weaken over the next 12-18 months because of declining contracted sales.
"The company's continuing exposure to funding volatility, on top of is high refinancing needs, does not support an investment-grade rating," Moody's said.
The firm's sales in the first two months of this year dropped 40% from a year ago.
Vanke's share price and bonds had faced major selling pressure last week after reports it was facing financial stress and had sought debt maturity extensions from some investors.
The company said in a filing on Friday it had deposited funds required to repay $630 million U.S. dollar notes that were due on Monday.
Vanke is government-backed with around 30% owned by Shenzhen Metro, a company held by Shenzhen's state asset regulator.
($1 = 7.1769 Chinese yuan renminbi)
($1 = 7.8235 Hong Kong dollars)