(Yicai) Dec. 29 -- Struggling Chinese real estate giant Vanke has again failed to secure creditor approval to extend a medium-term note maturing this month. Creditors did, however, agree to extend the bond’s grace period from five working days to 30 days, buying both sides more time to continue negotiations.

The five proposals to extend the CNY3.7 billion (USD521 million) medium-term note 22 Vanke MTN005, which was due on Dec. 28, all failed to reach the 90 percent voting threshold required for approval, according to a notice released by Bank of Communications, the note’s escrow agent, on the website of the Shanghai Clearing House on Dec. 26. Voting support ranged from just 1.76 percent to as high as 73.77 percent. By contrast, the proposal to extend the grace period by one month won 92.11 percent of the vote.

Prior to the vote on MTN005, creditors had already rejected an extension plan for another medium-term note, 22 Vanke MTN004, with a principal of CNY2 billion (USD282 million). Creditors likewise agreed to extend its grace period by one month.

Vanke’s financial commitments appear unsustainable, Chen Linghua, an analyst at US financial information firm S&P Global Ratings, told Yicai in an email. Without more favorable terms, the Shenzhen-based company may initiate a distressed debt exchange or restructuring in the next six months or could potentially default.

New York-based S&P Global has downgraded Vanke’s credit rating from “CCC-” to “SD,” which stands for Selective Default, citing the company’s struggles with its debt obligations.

Some bondholders questioned during meetings whether extending the grace period by 30 trading days would still allow the two parties to reach consensus, a source close to the creditors told Yicai. Vanke signaled that it would continue communicating with creditors.

“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 grace period, talks can continue.

Collateral Constraints

The key to getting the green light for any new extension plans is for Vanke to provide additional credit enhancement, the person said. However, the developer may have limited assets left that can be pledged as collateral.

Vanke representatives acknowledged during the creditors’ meeting that as a high proportion of its real estate projects are joint ventures, these projects cannot be used to guarantee debts at the group headquarters, the insider said.

Vanke’s financial statements underscore this point. The company’s 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 shareholders’ equity, according to its third-quarter report. From 2022 to 2024, the proportion ranged from 37.7 percent to 40.1 percent.

The consolidation of financial statements makes a parent company’s assets appear substantial on paper, a finance executive at a Shenzhen-listed company told Yicai. However, in legal terms, these assets belong to the independent project companies, not the group headquarters. As a result, Vanke’s creditors can only pursue claims against the parent firm and cannot cross legal boundaries to seize assets held by its project-level subsidiaries.

Editors: Tang Shihua, Kim Taylor