Chinese Property Giant Vanke Takes Stake in Ailing Rival Tahoe
Agreement to buy 19.9% offers hope to home buyers who have made big outlays on unfinished apartments
(Wall Street Journal) -- One of China’s largest property companies threw its weight behind smaller peer Tahoe Group, potentially offering hope to many households that have made big outlays on unfinished apartments.
Tahoe is the highest-profile property developer to fall into financial crisis since the coronavirus hit China. On Friday it said a unit of China Vanke Co. agreed to buy 19.9% of the company from its founder and chairman, Huang Qisen, for 2.4 billion yuan ($342 million).
Analysts noted that the deal with Vanke wouldn’t result in any cash going directly to Tahoe. But they said Vanke’s endorsement could boost confidence in the smaller company, which could encourage some creditors to hold off on demanding repayment of their loans.
Tahoe’s upmarket projects in Beijing, Shanghai, and other wealthy cities have been paralyzed, according to interviews with home buyers, social-media posts and media reports. Thousands of buyers of unfinished units have each handed over millions of yuan in down payments and must continue monthly mortgage payments. They have urged the company to restart building.
Maggie Wang, a home buyer in Beijing, said that since May construction was halted on a Tahoe project she had invested in and that the company said it had run out of money to continue. On Friday, she said, Tahoe told home buyers construction would resume in August.
Lulu Shi, an analyst with Fitch Ratings, said that for now there was a limited impact on Tahoe’s credit profile. “We will need more details on how Vanke can help Tahoe to improve operations and financials to have a clearer picture,” she said.
“The Vanke deal is not an outright rescue,” said Leonard Law, a Singapore-based credit analyst at Lucror Analytics Pte. “The most likely outcome is that Vanke’s presence could facilitate some kind of debt restructuring to help Tahoe stay afloat, but bondholders will likely still have to accept a haircut.”
Strains in China’s property industry have fallen disproportionately on companies lacking scale and financial resources. More than 200 smaller developers had filed for bankruptcy as of June 5, according to state media. This week, Moody’s Investors Service said it expects industry consolidation to continue for 12-18 months, as weaker players are forced out of the market.
Tahoe failed to repay onshore notes worth about $214 million on July 6, citing a property downturn that was worsened by the coronavirus. It later said it had hired financial advisers for a strategic review and that it would look at options for its onshore and offshore debt obligations.
The stake purchase will be in cash, and depends on regulatory approval and Tahoe agreeing to a restructuring deal with creditors, among other conditions, Tahoe said Friday. Mr. Huang, whose current stake is about 48.9%, will remain the largest shareholder.
The deal was priced at 4.90 yuan a share. Tahoe stock surged 7.5% by early afternoon in Shenzhen, to 6.40 yuan a share. Stock in Vanke, China’s biggest developer by market value, shed 0.3% to 26.80 yuan.
Tahoe didn’t say anything about the July bonds. A member of its capital-markets department said its restructuring plan was continuing.
By the end of March, Tahoe had total short-term debt of 67.9 billion yuan ($9.7 billion), according to FactSet. That compares with a market value of about 14.9 billion yuan as of Friday. “Junk”-rated Tahoe has about $840 million in dollar bonds due by January. Those bonds trade far below face value, indicating investors doubt they will be repaid in full.
By Xie Yu