(Yicai) March 12 -- China Vanke and Gemdale, both large Chinese real estate developers with a good record, are being forced to offload properties and stocks in order to repay their maturing debts amid a prolonged downturn in the country’s real estate market.

Vanke has sold CNY3.7 billion (USD515.5 million) worth of assets since the second half last year, industry insiders told Yicai. This includes a 50 percent stake in one of its biggest revenue generators, the Shanghai Qibao Vanke Mall.

And Vanke had to step in last week to quash rumors circulating on social media earlier this month that it was attempting to seek an extension on a USD630 million bond due on March 11 as the speculation was hammering its bond prices. The funds are ready, it said on March 5.

The bond prices have since recovered, but Vanke is still under great liquidity pressure. The builder had issued 75 bonds, both onshore and offshore, worth CNY87.2 billion (USD12.1 billion) as of March 4, according to Wind data. Of this, CNY15 billion is due to mature in the first half and CNY32.6 billion over the course of the year.

The Shenzhen-based firm also holds over CNY20 billion of non-traditional debt from banks or trust institutions, with one such debt of CNY2.6 billion (USD370 million) needing to be repaid by the end of this year.

Meanwhile Vanke’s cash and cash equivalents had shrunk 24 percent as of Sept. 30 last year, from the same period a year earlier, to CNY103.7 billion (USD14.4 billion), according to company data. This gives it a short-term coverage ratio of 2.2 times.

Gemdale is in a similar position and had 15 outstanding bonds, both onshore and offshore, totalling CNY21 billion (USD2.9 billion), as of March 4, according to Wind figures. Of these, CNY4.1 billion are due to mature this month and CNY15.8 billion over the course of the year.

Yet tumbling sales are making it increasingly difficult for these two real estate giants to honor their debts. Vanke’s sales plunged 32 percent in January from a year earlier to CNY19.4 billion (USD2.7 billion), its lowest monthly sales ever. And last year sales slumped 9.8 percent year on year.

While Gemdale’s sales plummeted 40 percent in January from the same time last year to just CNY5.5 billion. In 2023, sales were down 30 percent from the year before.

Eroded Trust

Most real estate firms’ available cash needs to go towards finishing the construction of projects that have already been pre-sold, and cannot be spent on paying back debts, industry insiders told Yicai. Therefore, when short of cash, developers usually have to sell assets to raise money.

Vanke holds about CNY90 billion (USD12.5 billion) in commercial properties and logistics assets as well as CNY13 billion in stocks, according to unconfirmed internal meetings minutes reportedly from Vanke. If it sells off valuable assets in the biggest, first-tier cities, it could raise around CNY30 billion. If it sells stock, it could raise about CNY8 billion.

It is not known how much financing Vanke can raise to avoid selling more assets.

Creditors and investors have always believed that in the event of default by these developers, banks or governments would step in to save them, after all they are also shareholders, said Dennis Huang, president of Wilson Capital International. But if this does not happen, then investors’ trust in these businesses will be further eroded and confidence in the entire real estate sector will take a further knock.

Editors: Tang Shihua, Kim Taylor