(Yicai) Nov. 21 -- Following market concerns, property developer China Vanke said its largest shareholder’s request for collateral to secure earlier loans is simply a contractual and procedural matter and not a signal that Shenzhen Metro Group is pulling its financial support.

Vanke held an extraordinary general meeting yesterday to vote on a proposal regarding Shenzhen Metro’s shareholder loans. According to the document, the rail transit operator has provided up to CNY220 billion (USD31 billion) in loans to Vanke so far this year to repay the principal and interest on the Shenzhen-based builder’s bonds, as well as other agreed interest expenses. 

As of now, Shenzhen Metro has extended CNY213.8 billion in loans without collateral. Vanke must subsequently provide collateral for these loans, or Shenzhen Metro will have the right to demand early repayment of the principal and interest.

Some market participants have interpreted the proposal as Shenzhen Metro seeking to secure collateral and possibly signal the winding down of its liquidity support for Vanke.

At the meeting, management countered that the loan agreements already include such requirements, with debt-protection measures clearly disclosed in earlier announcements. They stressed that Vanke is fulfilling its contractual obligations and said collateral assets are a standard practice and reflect market and legal principles.

Management further explained that the company is now seeking shareholder approval to wrap up the collateral procedures. To promptly meet Vanke’s funding needs and avoid delays caused by lengthy shareholder approvals, Shenzhen Metro provided some funds in advance, they said, adding that the authorization request ensures that formal collateral arrangements are completed in line with procedures.

Vanke Chairman Huang Liping, who took up the reins last month, said the company must endure a period of adjustment as it digests past burdens.

Huang noted that Vanke faces severe challenges and continued pressure on its operating results. As the controlling shareholder, Shenzhen Metro will work with all parties to help Vanke mitigate risks, overcome its difficulties, and return to a healthy development path, he said.

Editor: Emmi Laine