(Jan 28): China Vanke Co has been thrown a lifeline by state authorities, a rare show of support that signals the developer may be too big to fail even after dozens of property firms defaulted amid China’s punishing housing slump.

As part of an overhaul unveiled late Monday, Vanke’s two top veteran executives stepped down after the company warned of a record US$6.2 billion (RM27.1 billion) loss. An official from Shenzhen Metro Group Co, its largest state shareholder, will take over as chair. Shortly after the surprise announcement, local and state governments in Vanke’s home base of Shenzhen vowed to “proactively support” its operations through state media.

Vanke’s bonds soared as investors bet that the embattled developer will avoid the fate of China Evergrande Group and Country Garden Holdings Co that defaulted in recent years with little help from Beijing or other government entities.

“Vanke is the first developer to see direct state intervention, it’s almost like a bailout,” said Raymond Cheng, head of China property research at CGS International Securities Hong Kong. “I expect Shenzhen Metro to eventually become Vanke’s majority shareholder.”

The unusual support shows that Vanke holds a special place within China’s moribund property sector. The developer is known across the country and already has state backing via the subway operator in Shenzhen. Vanke has deep roots as just the second company to list on the Shenzhen Stock Exchange in 1991, with a ticker symbol of 000002.

A default by Vanke would batter home sales further and erode confidence in other state-controlled developers such as Poly Developments and Holdings Group Co and China Overseas Land & Investment Ltd, which are now the country’s biggest builders by sales. Vanke, which employs about 130,000 people, ranked fifth in 2024.

The Vanke lifeline also signals that China is willing to take more steps to halt a housing slump that’s now in its fourth year. The government announced a slew of stimulus measures last year — from lower mortgage rates to eased buying restrictions — but they’ve done little to reverse the downturn.

“The major intention of such a government move is to further stabilize home market sentiment and avoid potential panic,” said Jefferies Financial Group Inc analyst Chen Shujin. “Home delivery will remain the top priority for local governments.”

Housing continues to be a drag on the economy, which also faces headwinds from creeping deflation and the prospect of higher tariffs from US President Donald Trump. The economy unexpectedly limped out of the gate to start the year, underlining the need for Beijing to do more. Factory activity shrank in January after three months of expansion, while a gauge for construction and services dropped, according to data released on Monday.

Support for Vanke will come initially from the local state government, which pledged to inject cash into its metro service to help the developer, according to the report in Nanfang Daily, a media outlet run by the Communist Party in the southern Guangdong province.

The government has sought to assuage concerns that Shenzhen Metro’s balance sheet may not be big enough to support Vanke. The subway operator, which holds a 27% stake in Vanke, had combined assets of 716 billion yuan at the end of 2023, about half of Vanke’s 1.5 trillion yuan at the time. The city’s assets stood at more than five trillion yuan, and its annual revenue surpasses one trillion yuan, the report added. The bustling city near Hong Kong is home to several tech giants including Tencent Holdings Ltd and Huawei Technologies Co.

“Shenzhen’s state assets are large-scale, strong and have enough ‘ammunition’,” the paper said, citing an unidentified official at the local state-asset supervision authority. The assets “will support Shenzhen Metro to use as many market-based measures as possible to push forward Vanke’s prudent development.”

Investors welcomed the moves. Vanke’s 3.15% dollar bond maturing in May rose about 11 cents to 92 cents Monday — the biggest jump in more than a year — well above the distressed levels of many developer peers. A 3.975% note due November 2027 climbed to about 66 cents, more than double the price from 10 days ago.

Vanke’s shares meanwhile have rebounded from near-record lows on speculation of further government help, lifting its market value to more than 82 billion yuan. China’s equity markets are closed for the rest of the week for New Year’s celebrations, although Hong Kong will be open on Tuesday morning.

Vanke has made arrangements for debt repayments due in the first quarter, the Nanfang Daily report cited the developer’s new chairman as saying. On Monday, onshore bondholders said they received repayment of a 2.95% note due on Jan 27, which had three billion yuan outstanding. Last Friday, Vanke said it plans to exercise a redemption option on a 3.42% yuan bond due in 2027.

Still, the developer has about US$3.8 billion in yuan- and dollar-denominated bonds maturing or facing redemption options in the final three quarters of 2025, according to Bloomberg-compiled data. Its total liabilities are about 982 billion yuan.

“The Shenzhen government could be poised to gain broader control of Vanke with a management shake-up,” Bloomberg Intelligence analysts Kristy Hung and Monica Si said in a note. “This could pave the way for a step-up in state support, with the government set to facilitate more asset sales for Vanke to shore up its liquidity.”

Authorities are already stepping in to manage Vanke. Xin Jie, chairman of Shenzhen Metro, will replace chairman Yu Liang, who resigned but will remain a director, Vanke said in a filing to the Hong Kong stock exchange. Chief executive officer Zhu Jiusheng is also quitting, citing “health reasons.”

Shenzhen, Guangdong province and China’s related departments will “pay high attention” to Vanke and will support its stable operation, the Nanfang Daily report said. The parties will “protect the rights of homebuyers, creditors and investors.”

As a first step, Shenzhen Metro on Monday took over Vanke’s stake in a project it jointly held in the southern Hainan province’s Mangrove Bay area, allowing Vanke to recoup some cash.

The moves come after Vanke warned of a record 45 billion yuan loss for 2024. That’s the first annual loss since its listing more than three decades ago, and was more than double some analysts’ projections. The results included a 17.9 billion yuan loss in the first nine months, suggesting operations worsened significantly in the final quarter even as the government unveiled its biggest stimulus package.

Speculation about the company’s health intensified this month, when local media reports spurred questions about the whereabouts of Zhu. The Economic Observer reported that the then-CEO had been taken away by police, and that the local government sent a working group to intervene in the company. The report was later taken down.

The news suddenly thrust a spotlight on Vanke.

“As an iconic developer, a downfall of Vanke would deal a huge blow to home market confidence,” Cheng at CGS said. “It’d also be a ‘slap in the face’ after policymakers vowed to stem the decline in the home market nationwide a short while ago.”

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