Daily Brief Credit: China Vanke – Earnings Flash – H1 FY 2024 Results – Lucror Analytics and more

China Vanke’s H1/24 results were weak in our view. Revenue from the core property development business fell meaningfully amid fewer project deliveries. In addition, the 5% gross margin from property development was weaker than that reported by peers, as Vanke likely carried out aggressive discounting to boost sales. Cash flows were weaker than expected, leading to higher net debt and leverage deterioration. Moreover, liquidity was inadequate.

We note negatively that management did not mention its debt reduction plans. Still, we view positively that the company has reiterated its strong commitment to timely repayment of public debts and ensuring no defaults occur. In addition, Vanke’s proportion of offshore debt has decreased, which could enhance the recovery value against offshore assets in the event of a restructuring. We estimate that the company’s offshore assets may cover offshore debt by 0.7x.

We do not expect Vanke to default in FY 2024, as the company is able to obtain onshore loans for refinancing. Going forward, we believe Vanke’s ability to stave off default in FY 2025 may depend on the progress of its asset sales and asset monetisation initiatives.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

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