China’s Last ‘Too-Big-to-Fail’ Housing Giant Loses State Support

The bombshell hit on a late Sunday afternoon.

China Vanke Co., the last big survivor of the country’s yearslong property crunch, sent investors an innocuous-looking announcement about a $3.1 billion loan agreement with a state-owned shareholder. But the Nov. 2 statement contained a twist: Shenzhen Metro Group Co., which had given unwavering support to the developer for nearly two years, now set a cap on any further financing. It also demanded that Vanke stump up collateral for its loans — including for the $2.8 billion already drawn down.

The move, which sent a signal that state officials were finally losing patience with Vanke, set off a chain reaction that ultimately pushed the company to ask for more time to pay back some of its debt. Its dollar bonds have lost more than two-thirds of their value, tumbling to as low as 20 cents on the dollar. State-owned banks have scrambled to limit their exposure. Regulators, unwilling to rescue the company, have started making plans to contain the fallout, according to people familiar with the matter.

Bankers and fund managers are now rushing to weigh the damage of what could become one of the biggest corporate restructurings in China’s history, involving over $50 billion of outstanding debt — including more than $7 billion held by lenders and bond investors overseas. They warn that Vanke’s worsening problems will send ripples throughout China’s economy and its financial system, threatening losses for banks and ramping up pressure on the long-struggling property sector.

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