By Clare Jim and Donny Kwok
HONG KONG (Reuters) -The future of developer China Vanke and its $45 billion in debt were in focus on Friday after media reports alleged its CEO had been temporarily detained, deepening concerns about China’s embattled property sector.
Vanke had previously been viewed as insulated from China’s broader property market turmoil given it is backed by major state-owned shareholder Shenzhen Metro while other crisis-hit developers are mostly privately owned.
Vanke CEO Zhu Jiusheng was detained on Wednesday, The Economic Observer reported on Thursday without detailing the reasons for the move.
It said Vanke could be subject to a government takeover and reorganisation, citing unidentified sources. The state-backed newspaper provided no detail on what any revamp might look like.
The reports were deleted without explanation on Friday when a post, ostensibly promoting a Vanke rental apartment unit, appeared on Zhu’s WeChat social media account suggesting he was back to business, according to two of his friends who asked not to be identified as the post was private.
Chinese media outlet Caijing, citing a person close to Vanke, said Zhu via WeChat and telephone told financial institutions and some media after the post that he was safe, having temporarily lost contact since Wednesday.
Two sources with knowledge of the matter told Reuters that authorities had previously barred Zhu from leaving mainland China.
Vanke declined to comment when contacted by Reuters.
The ministry of public security did not respond to a faxed request for comment. Calls to the Shenzhen government went unanswered.
It is not uncommon for Chinese authorities to detain high-profile executives.
Evergrande Group Chairman Hui Ka Yan, who has not been seen in public since 2023, was detained two years after the world’s most indebted developer defaulted on most of its $300 billion in liabilities.
NEGATIVE OUTLOOK
Moody’s downgraded Vanke’s corporate rating on Friday by two notches to B3 from B1, with a negative outlook, citing its deteriorating liquidity profile amid sluggish sales and rising maturities over the next 6-12 months.
“The liquidity management challenges and elevated refinancing risks will raise the company’s execution risks and exposure to market volatility,” said Roy Zhang, a senior analyst at Moody’s Ratings.
Investors are watching closely to see how the government deals with the developer.
“The CEO being ‘taken away’ or the stepping-in of a working group may sound negative at first glance, but we believe it is important to note if the government’s ultimate determination is to support Vanke to meet debt obligations,” JPMorgan analysts said in a client note.
Chinese authorities are working to pull the property sector out of a debt crisis that has dragged on since 2021 using measures such as cutting mortgage rates and minimum down-payment ratios.
Shenzhen-based Vanke’s interest-bearing debt stood at 331.3 billion yuan ($45.21 billion) at the end of June, with $3.4 billion in public bonds maturing this year.
Some of Vanke’s yuan bonds rose on Friday afternoon after the Caijing report, with seven of them surging over 20%, triggering trading suspensions by the Shenzhen exchange.
This contrasted with two of its bonds sliding more than 20% in the morning session.
Its May 2025 dollar bond was still trading at its lowest since Nov 2023, however, bids were at 56.491 cents on the dollar versus 63 cents a day earlier.
Vanke’s Hong Kong-listed shares fell as much as 9% on Friday to their lowest since September, before paring losses to close down 3.1%. Its Shenzhen-listed stock fell 3.6%.
SOCIAL MEDIA POST
Vanke’s financial woes became public early last year after the developer sought to extend the maturity of debt as its monthly sales plunged below break-even levels. It fell to fifth by sales value last year from second in 2023.
Confidence among homebuyers and investors could sink further should Vanke fail to repay its debt. About a third of the developer is held by Shenzhen Metro, which comes under Shenzhen’s state asset regulator.
Its CEO Zhu spent 19 years at the Shenzhen branch of state lender China Construction Bank before joining Vanke in 2012 and becoming chief executive in 2018. He runs the firm alongside Chairman Yu Liang, who has been with the company since 1990.
“People would still be worried after (Zhu’s WeChat) post; we still don’t know how the company is doing,” said UOB Kay Hian director Steven Leung.
“If even a developer with a state-owned major shareholder got into trouble, it could mean more private developers could head that way too.”
($1=7.7881 Hong Kong dollars)
(Reporting by Donny Kwok and Clare Jim; Additional reporting by Gu Li in Shanghai; editing by Anne Marie Roantree, Christopher Cushing, Saad Sayeed and Jason Neely)
