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Vanke is actively selling assets and reducing debt through various means.

On the evening of August 13, Vanke issued an announcement stating that its subsidiaries Vanke Yingtong, Shenzhen Vanke, CITIC Jinshi Fund Management Co., Ltd., CITIC Securities Investment Co., Ltd. and Taikang Life Insurance Co., Ltd. jointly invested in the establishment of Vanxin Jinshi (Nanjing) Commercial Investment Partnership (Limited Partnership) (hereinafter referred to as "CITIC Vanke Consumer Infrastructure Fund").

The fund raised a total of 2.234 billion yuan, which will be mainly used to acquire two subsidiaries of Vanke. The two subsidiaries mainly hold assets of Beijing Jiugong Vanke Plaza and Shenzhen Longgang Vanke Plaza, and also have liabilities such as operating property loans.

Vanke's transaction can be seen as the establishment of a private REITs, which will remove the equity and liabilities of the two Vanke Plazas from the balance sheet and recover some funds. Vanke responded in the announcement that the participation in the investment in CITIC Vanke Consumer Infrastructure Fund is an important measure to implement the company's "package plan", which will help the company focus on its main business, slim down and strengthen its body, and build a future-oriented, strategic and sustainable asset securitization platform.

This is another exploration of Vanke on the road to "burden reduction". At present, Vanke is still very difficult to reduce debt due to the continuous pressure on sales and the inactive trading of major assets. In this context, Vanke is still trying to find diversified ways to reduce debt, which is also a clear attitude to the market.

Image source: Photo by our reporter Liang Yuanhao

Diversification and burden reduction

The fund raising scale in which Vanke participated was 2.234 billion yuan, which was mainly used to acquire its two subsidiaries. The two subsidiaries mainly held assets of Beijing Jiugong Vanke Plaza and Shenzhen Longgang Vanke Plaza, and also had liabilities such as operating property loans.

In terms of capital contribution structure, Wanjuyingtong's subscribed capital is 10 million yuan and Shenzhen Vanke's subscribed capital is approximately 1.242 billion yuan, accounting for a total of 56.05% of CITIC Vanke Consumer Infrastructure Fund; CITIC Jinshi Fund Management Co., Ltd., CITIC Securities Investment Co., Ltd., and Taikang Life Insurance Co., Ltd.'s subscribed capital is approximately 1 million yuan, 199 million yuan, and 782 million yuan, respectively.

Although Vanke currently holds the largest stake, it can still reduce its holdings. In the announcement, Vanke said it has the right to transfer no more than 36.05% of the subscribed shares to subsequent investors in accordance with the Limited Partnership Contract.

The two projects invested by this fund are relatively high-quality projects among Vanke's current holdings. Public data shows that the turnover of Shenzhen Longgang Vanke Plaza and Beijing Jiugong Vanke Plaza exceeded 2 billion yuan and 600 million yuan respectively last year.

This can be seen as a private REITs structure. Vanke sold two Vanke Plazas by setting up a fund platform, and at the same time repatriated some funds and profits. Vanke also stated in the announcement that its subsidiary's participation in the investment in CITIC Vanke Consumer Infrastructure Fund is an important measure to implement the company's "package plan", which will help the company focus on its main business, slim down and strengthen its body, and build a future-oriented, strategic and sustainable asset securitization platform.

Vanke's so-called "package plan" mainly includes two stages: the first stage is to resolutely reduce size, adjust financing model and reduce risks. Specifically, in addition to the three main businesses of integrated residential development, property services and rental apartments, Vanke will withdraw from other businesses, clean up and transfer non-main financial investments; it will resolutely and vigorously promote the transaction of large assets such as commercial offices, and plans to complete 20 billion yuan per year; at the same time, it will actively complete the transformation of financing model.

The second phase is to focus on the core business, improve the business, and become the benchmark for industry products and services. For the three major competitive businesses, Vanke will concentrate resources and management efforts to make them better and stronger, and maintain its continuous leadership.

Currently, Vanke is still in the first stage. The disposal of two Vanke Plazas is a disguised way of withdrawing from non-core businesses by transferring large assets.

Uncertainty remains

Before the disposal of the two Vanke Plazas, Vanke had other large transactions recently. On July 30, Vanke announced that its holding subsidiary Suzhou Fuheng Enterprise Management Consulting Co., Ltd. intends to transfer its 50% equity in Suzhou High-tech Wanyang Real Estate Co., Ltd. to Suzhou High-tech Real Estate Group Co., Ltd.

This is a cooperative project. After the transfer, Vanke will withdraw from the development of this project.

In terms of commercial assets, Vanke has previously transferred the ownership of Vanke Qibao Plaza to Link REIT, and CICC Intime REIT has also completed its listing.

Although Vanke has disclosed transactions of major assets, the exit of other businesses of Vanke is not simple. In contrast, although the logistics business, which is not in the scope of Vanke's main business, is currently exploring REITs, it has not yet found a way and path to revitalize the overall assets; and there is no further information on how to deal with its equity investment in Prologis.

A real estate analyst familiar with Vanke told the 21st Century Business Herald reporter that "large assets are generally not so easy to sell nowadays. Even if someone is interested in taking over, they will start with good projects and accept a higher discount. Vanke's recent projects are all good projects. Qibao Plaza and Longgang Vanke Plaza are both relatively mature projects. We regard other assets as 'heavy investment' long-term projects. It will take a lot of effort to sell them now."

Despite the many difficulties in reality, Vanke must not give up, because the basis for crossing the cycle is self-rescue. Vanke Chairman Yu Liang has previously stated that "Vanke's management team is determined not to 'lay flat' and will definitely cross this stage. Vanke will increase its efforts to revitalize existing stocks and convert real estate into assets to ensure a thicker safety cushion."

While Vanke is aggressively selling off its assets, its sales have not eased. In the first seven months of this year, Vanke's contract sales totaled 146.55 billion yuan, down more than 35% year-on-year.

A private equity firm that holds Vanke bonds told the 21st Century Business Herald reporter that if sales do not improve and Vanke's good assets are basically sold out, Vanke will still face great uncertainty next year. "It depends on the actions of Vanke's management and the changes in the entire market. Judging from the current market situation, Vanke has not seen much positive news, and its existing debt scale is also relatively large."

Many international rating agencies have also become more cautious about Vanke. On August 13, Moody's announced that it would downgrade the family rating of Vanke Co., Ltd. and its wholly-owned subsidiary Vanke Real Estate (Hong Kong) Co., Ltd. to "B1" and give it a "negative" outlook.

Moody's expects Vanke's contract sales to drop by about 30% and 20% this year and next year, respectively. In addition, Vanke's profit margin will be pressured by discounts and promotions during the real estate downturn. Moody's also said that although Vanke faces financial risks due to its huge refinancing needs, its ability to raise long-term secured financing from onshore banks has mitigated the risks to a certain extent.

This is also the general view of the market. The key to whether Vanke can successfully pass the test lies in whether its refinancing ability can be fully stimulated. If Vanke's refinancing is successful, its safety threshold will be increased accordingly, but in the current market environment, Vanke still needs to actively work hard to revitalize assets to cope with the impact of the market downturn on sales.