S&P Slashes Vanke to Deep Junk, Warning of 'Unsustainable' Debt Wall

S&P Global Ratings has cut China Vanke’s credit score deeper into junk territory, warning that the developer’s capital structure may be “unsustainable” as it faces a critical liquidity squeeze. The downgrade to CCC- marks a stunning capitulation for a company once viewed as the safest bet in China’s crisis-hit property sector.

Liquidity Dries Up as Maturity Wall Looms

In a stark assessment, S&P placed Vanke on CreditWatch with negative implications, citing depleting liquidity and a “bond maturity wall” of 11.4 billion yuan ($1.6 billion) due by May 2025. With operating cash flow expected to turn negative, the agency warned that Vanke lacks the internal resources to bridge this gap without external funding or creditor concessions.

The 'State-Backed' Shield Evaporates

The downgrade validates a brutal sell-off that has battered Vanke’s bonds to record lows this week. Investor confidence collapsed following reports that Beijing has instructed local authorities to seek a “market-oriented” solution to Vanke’s debt woes.

In the lexicon of Chinese policy, markets interpret "market-oriented" not as a bailout, but as a euphemism for debt restructuring and loss-sharing. This signal has forced a painful repricing of the "state-backed put option" implied by Vanke’s major shareholder, state-owned Shenzhen Metro.

Market Reaction: Distress Pricing

The fallout has been immediate. On Friday, Vanke’s yuan bond due March 2027 plunged 22.5% to trade at just 31 cents on the dollar, down from 85 cents earlier in the week. Multiple onshore bonds triggered exchange circuit breakers after falling more than 20%.

Validating S&P's grim outlook, Vanke confirmed Wednesday it is seeking to delay repayment on a 2 billion yuan onshore bond due Dec. 15—its first public step toward a distressed exchange. A bondholder meeting is set for Dec. 10.

Broader Contagion Fears

While analysts note Beijing’s priority remains delivering pre-sold homes rather than bailing out bondholders, Vanke's descent into distress suggests the cleanup of the property sector is far from over. With new home prices falling at their fastest clip in a year and Vanke reporting a 16.1 billion yuan loss in Q3, the developer is now caught in the same negative feedback loop of eroding earnings and restricted funding that toppled giant China Evergrande.