China Vanke bondholders approve grace period extension, reject year-long delay

China Vanke's bondholders approved a proposal by the state-backed developer to extend the grace period for a 3.7 billion yuan ($528 million) bond repayment, but rejected delaying the repayment by a year, a filing showed on Friday.

The decision, disclosed in a filing to the National Association of Financial Market Institutional Investors by the bond's underwriter, followed a similar move recently by holders of another Vanke note.

The 3.7 billion yuan bond will mature on December 28 and its grace period will now be 30 trading days instead of five.

Earlier this week, holders of another Vanke note <CN102282715=> rejected a proposal for a second time to delay repayment by one year, but they approved a plan to extend the grace period, helping the developer narrowly dodge a default. The note is worth 2 billion yuan and matured on December 15.

S&P Global Ratings downgraded China Vanke to 'SD' (selective default) on Tuesday, saying it views the developer's extension of the grace period for its onshore bond due December 15 as distressed-debt restructuring and tantamount to a default.

Ratings agency Fitch also downgraded Vanke to 'RD' (restricted default) from "C" on Wednesday.

Aside from the 2 billion yuan onshore bond, China Vanke faces 9.4 billion yuan in bonds maturing over the six months through May, according to S&P.

A default by Vanke would weigh further on China's property market that is showing little signs of leaving behind a debilitating debt crisis that began in 2021. The property sector once accounted for a quarter of the world's second-largest economy and its persistent weakness has dampened consumer sentiment in the country.

Vanke's proposals required at least a 90% approval rate to pass. The grace period extension plan achieved 92.11%.

Vanke is set to mirror the strategies of some other cash-strapped Chinese developers and seek multiple short-term extensions for its bond repayments before ultimately proposing a debt restructuring, credit analysts have said.

It is now seen as a test case for how much local governments are willing to backstop distressed firms from slipping into defaults, they added.

($1 = 7.0069 Chinese yuan renminbi)

-Shanghai Newsroom and Beijing Newsroom/Reuters