(Yicai) Dec. 15 -- China Vanke’s shares fell after bondholders rejected the real estate developer's proposals to extend a CNY2 billion (USD284 million) note due today, fueling expectations of an imminent default and subsequent debt restructuring.

Vanke [SHE: 000002] closed down 3 percent at CNY4.87 (68 US cents) per share in Shenzhen today, while its Hong Kong-listed stock [HKG: 2202] sank 5.2 percent to end at HKD3.49 (44 US cents).

None of Vanke’s three proposals to extend payment of 22 Vanke 02 secured creditor approval following a bondholders’ meeting, Shanghai Pudong Development Bank, the bond's community manager, announced yesterday on the website of the National Association of Financial Market Institutional Investors.

As a result, the repayment window for this note has almost closed. Based on the bond’s prospectus, failure to make payment on the maturity date triggers a five working day grace period, after which the issuer would be deemed in default if payment remains outstanding.

Of Vanke's three proposals, its initial plan for a one-year extension of both principal and interest with no additional credit support received zero support, with 76.7 percent of creditors against it and 23.3 percent abstaining, SPDB said.

The two other proposals received support rates of 83.4 percent and 19 percent, both below the 90 percent approval threshold. Creditors requested Vanke to provide additional credit support measures acceptable to investors for the extension and to adjust the repayment arrangement for the bond principal and interest.

Some creditors are concerned that if they agree to the extension, the value of Vanke's assets may risk being undervalued or disposed of by non-market means during the debt resolution window, Yicai learned from an informed source.

In the current market environment, a builder’s public proposal for debt extension is itself regarded as a significant credit event, the source noted. The impact of such an event on Vanke's reputation and refinancing ability is close to that of an actual default, so some creditors prefer to follow default resolution procedures and proceed directly to legal channels, they added.

Second Bondholder Meeting

SPDB said in a separate statement that a second meeting of creditors will be held on Dec. 18 in a last ditch attempt to reach a compromise. The deadline for the final bondholder vote is 10 a.m. on Dec. 22.

Vanke has not yet disclosed a detailed list of creditors holding the bond. However, Yicai learned from industry insiders that more than 85 percent of them are commercial banks, with public and private funds accounting for just over 10 percent.

Holders of Vanke's other domestic bonds are also mostly commercial banks. In addition to two public funds, all of Vanke's other bondholders are lenders or their affiliate wealth management funds, according to the company's semiannual report on bondholders, Sun Binbin, chief economist at Caitong Securities, told Yicai.

Sun said that since Vanke's bonds account for a relatively small share of the bond market, and public funds hold only a limited amount, a potential default is unlikely to have a major market impact.

Ripple Effect

Regardless of whether Vanke's extension of this medium-term note is successful, the company's efforts to seek an extension are likely to have already impacted the handling of its other maturing bonds. Vanke is also seeking to extend another CNY3.7 billion (USD524.8 million) note due at the end of this year.

The failure to secure an extension to 22 Vanke 02 has heightened market doubts about Vanke’s willingness and ability to repay, and will add greater pressure to the upcoming negotiations for the CNY3.7 billion bond, an industry insider told Yicai.

Holders of that note may demand higher risk compensation or stricter credit-enhancement measures from Vanke, leading bondholders to adopt a more cautious or even aggressive stance, the insider explained.

As of Nov. 30, Vanke has repaid a total of nearly CNY19.6 billion (USD2.8 billion) in Chinese public bonds this year. It has 13 outstanding corporate bonds and medium-term notes in the home market, with a combined balance of CNY20.3 billion.

The builder has another CNY10 billion in Chinese yuan bonds maturing between April and July next year.

Editors: Tang Shihua, Futura Costaglione