(Yicai) Dec. 29 -- China Vanke has failed to win creditor approval to roll over a second medium-term note maturing this month, though bondholders did agree to extend the grace period, giving the embattled real estate developer more time to negotiate.

Each of the builder's five proposals to extend repayment of the CNY3.7 billion (USD521 million) bond due on Dec. 28 failed to reach the 90 percent support level required for approval, according to a notice posted by Bank of Communications, the note’s trustee, on the website of the Shanghai Clearing House on Dec. 26.

Support for the rollover options ranged from as little as 1.8 percent to as much as 74 percent. By contrast, the proposal to extend the grace period from five working days to 30 days garnered 92 percent support.

Prior to voting on extending the bond, 22 Vanke MTN005, creditors had also rejected a rollover plan for 22 Vanke MTN004, a CNY2 billion (USD282 million) medium-term note that fell due on Dec. 15. They likewise agreed to extend its grace period by one month.

Vanke’s financial commitments look increasingly unsustainable, Chen Linghua, an analyst at S&P Global Ratings, told Yicai in an email. Without better terms, the Shenzhen-based firm may pursue distressed-debt swaps or restructuring within six months or potentially default, Chen said.

The New York-based credit rating agency treats grace period extensions for domestic debt as distressed-debt restructurings equivalent to default, and has downgraded Vanke’s long-term issuer rating to “SD,” meaning selective default, from “CCC-.”

Some bondholders questioned whether extending the grace period to 30 trading days would actually leave room to reach a deal, a source close to the creditors told Yicai. Vanke signaled it would continue to seek dialogue.

“This may mean that if no compromise is reached by the end of the new grace period, Vanke may seek another extension,” the source said, noting that as long as creditors agree to extend the period, talks can continue.

The key to getting the green light for any new extension is for Vanke to provide additional credit enhancement, the person said, but the builder may have limited assets left to pledge as collateral or mortgage.

Vanke representatives acknowledged at the creditors’ meeting that a large share of its projects are joint ventures, which cannot be used to bolster the creditworthiness of the parent company’s debt, the source said.

Vanke’s financial statements underscore this point. Its non-controlling interests came to CNY125.3 billion (USD17.6 billion) in the three months ended Sept. 30, accounting for 41.6 percent of total shareholder equity. From 2022 to last year, that ranged from 37.7 percent to 40.1 percent.

While consolidated statements can make a parent company’s assets appear substantial on paper, legal title to many rests with separate project companies rather than the parent, a finance executive at a Shenzhen-listed firm told Yicai. As a result, Vanke’s lenders can only pursue claims against the parent and cannot legally seize assets owned by project companies.

Editors: Tang Shihua, Kim Taylor