China Vanke, the state-backed property developer, is likely to seek multiple short-term bond extensions before ultimately proposing a comprehensive debt restructuring, analysts say. The move mirrors strategies employed by other cash-strapped Chinese developers facing liquidity pressures in recent years.

Bond Extension Efforts and Investor Pushback

Last month, Vanke surprised markets by requesting a one-year public bond extension for its 2 billion yuan ($284 million) note due December 15, despite receiving a 22 billion yuan loan from Shenzhen Metro, a company owned by the Shenzhen government.

The proposal failed as bondholders overwhelmingly rejected it, citing insufficient upfront cash payments and principal amortization. However, Vanke narrowly avoided default after bondholders approved a 30-trading-day grace period—up from the previous five days—by a 90.7% vote, just above the required threshold.

Vanke’s 3.7 billion yuan onshore note, due December 28, is now undergoing a similar bondholder vote, with analysts expecting similar outcomes: repeated grace period extensions before any broader restructuring.

“Vanke may request to extend the grace period multiple times until it enters a holistic debt restructuring,” said Zerlina Zeng, head of Asia credit strategy at CreditSights.

Comparison to Sunac’s Debt Restructuring

The Vanke case echoes Sunac’s landmark restructuring in 2024, where repeated bond extensions were followed by a debt-to-equity swap and steep haircuts on onshore debt, effectively reducing the company’s debt burden by more than half.

Analysts warn that a credit default by Vanke, previously China’s largest developer by sales, could shake buyer confidence in top-tier Chinese cities, where the company focuses its operations and where housing prices have been stabilizing.

Local Government Backstop and Financial Pressure

Vanke’s situation is also viewed as a test case for local government support of distressed firms. Shenzhen Metro has provided loans contingent on collateral pledges, but support is insufficient to cover Vanke’s total borrowings of 364.3 billion yuan.

Market observers note that a Vanke default could have broader implications for local state-owned enterprises (SOEs) and local government financing vehicles (LGFVs) if authorities tolerate higher rates of non-payment.

Potential Restructuring Options

Sources indicate that China International Capital Corporation (CICC) has been engaged to assess Vanke’s debt, with debt restructuring featuring haircuts among the options presented to the central government. Analysts suggest that this approach could cut Vanke’s debt, ease repayment pressures, and mitigate risks to the broader property market.

“Shenzhen Metro signaled dwindling support. Vanke cannot rely on government help anymore and will need other solutions to solve the problem,” said Steven Leung, director at UOB Kay Hian.

Vanke’s trajectory highlights ongoing challenges in China’s real estate sector, where liquidity pressures and debt overhang continue to affect both developers and investors, even among state-backed firms.