China Vanke Co., once the nation’s largest homebuilder by sales and the last major developer to avoid default amidst an unprecedented property crisis, now faces imminent debt failure. The company failed to secure sufficient creditor support for its proposal to defer a looming 2 billion yuan bond payment due on December 15. A filing to the National Association of Financial Market Institutional Investors revealed that three proposals, including a one-year extension plan, fell short of the required more than 90% support for passage.

This development leaves Vanke in a precarious situation, underscoring the formidable challenges China encounters in addressing a real estate debt crisis now entering its fifth year. This prolonged slump has already triggered record defaults and led to liquidations or restructurings for property giants such as Country Garden Holdings Co. and China Evergrande Group. Despite policymakers’ recent pledges to intensify efforts to stabilize the housing market, they have refrained from implementing measures that some economists believe are essential for reviving a sector crucial to the broader economy.

Vanke is now mandated to find the necessary funds to pay the bond by the end of Monday or within a grace period of five business days. Failure to do so, without a separate agreement to push back the deadlines, could lead creditors to declare a default – an outcome once considered unimaginable for the state-backed developer. For a long time, Vanke benefited from a pervasive investor belief that authorities would ensure its solvency, primarily due to its largest shareholder, state-owned Shenzhen Metro Group Co.

Indeed, Shenzhen Metro had provided over 30 billion yuan in shareholder loans, offering a crucial lifeline that helped the cash-strapped builder avert defaults earlier this year. However, this support came under increased scrutiny in recent months after Shenzhen Metro indicated plans to tighten borrowing terms. This strategic shift caused Vanke’s securities to plummet to deeply distressed levels. Just a week prior to the failed vote, financial and state asset regulators from Shenzhen appealed to bondholders for understanding regarding Vanke's current financial strain.

Yao Yu, founder of credit research firm RatingDog, commented on the voting results, stating, “The voting results indicated that the regulatory guidance hadn’t changed anything, making it very difficult for Vanke to reach a consensus with investors.” Yu suggests that Vanke is “quite likely” to propose another motion to extend the five-business-day grace period to 30 business days, thereby allowing more time for negotiations. The original proposal, which sought a 12-month delay on principal and interest without any upfront cash or installments, received no votes in favor. Two subsequent proposals, which included credit enhancements and an on-time interest payment, garnered backing from investors holding 83.4% and 18.95% of the bond’s outstanding amount, respectively.

Calls to Vanke’s investor relations office remained unanswered outside of business hours. Some market observers, including Li Huan, co-founder of Forest Capital Hong Kong Ltd., have expressed that a full-scale debt restructuring for Vanke is inevitable. They argue that even if Vanke could successfully secure further extensions, such measures would fail to address the fundamental underlying issues plaguing the company’s financial health and the broader Chinese property market.