KUALA LUMPUR: Is Shenzen-based property developer China Vanke considering an exit from the Malaysian market or putting off its operations here for a little longer?
Vanke's local unit, Vanke Holdings (Malaysia) Sdn Bhd (Vanke Malaysia), has been seeking a buyer for its sole project in Malaysia, located on Jalan Raja Chulan near the Kuala Lumpur Tower.
Despite initial plans to launch the project, development has been halted due to challenging market conditions.
Efforts to reach a spokesperson from Vanke Malaysia by Business Times were unsuccessful.
Sources close to Vanke Malaysia suggest that the company has paused its activities indefinitely due to domestic issues in China.
According to one source, discussions with the company early last year indicated their intention to find a buyer for the property.
However, given the high purchase price of the land and current market conditions, selling without incurring significant losses appears challenging, the source told Business Times.
Vanke Malaysia had acquired the 7.4-acre parcel in September 2017 for a reported RM500 million, or RM1,600 per square foot.
The company had initially announced plans to develop a RM5 billion mixed-use project on the site in early 2019. However, progress had stalled, exacerbated by the Covid-19 pandemic.
Concerns now arise because of the ongoing housing and debt crisis in China, which indirectly affects the state-backed Vanke's plans in Malaysia.
Investors reportedly have dumped shares and bonds of Vanke over the past few weeks on liquidity concerns amid reports that the developer, previously seen by the market as financially sound, was seeking a debt maturity extension with some insurers.
This situation mirrors the financial challenges faced by other Chinese property giants like China Evergrande Group and Country Garden Holdings Co. Due to the extraordinary liquidity crisis in China's real estate market, Evergrande has emerged as the most indebted property developer globally, while Country Garden has experienced historic losses and has defaulted on all of its overseas debt.
Reuters reported that Chinese regulators recently met financial institutions to discuss Vanke, where they asked large banks to enhance financing support and asked private debt holders to discuss maturity extensions.
According to Reuters, two sources with direct knowledge of the matter said the financial institutions were asked to make progress quickly, and that the State Council, China's cabinet, is coordinating efforts related to supporting Vanke. China Vanke declined to comment.
Meanwhile, Vanke Malaysia reportedly said last year that it was still operating in the country and was awaiting a rebound in Kuala Lumpur's property market for a more favorable launch opportunity.
Sources suggested that the company has very limited options for its operation here.
"We're uncertain about the extent of their borrowing for the land acquisition in 2017. Proceeding with the project independently could worsen their financial standing, especially given the current subdued market conditions, unless they've secured ready buyers for the entire development.
"If cash flow proves problematic and their parent company is burdened with debt in China, they might be compelled to sell the land forcibly. Should they opt to sell, it's likely they'll incur losses, similar to Agile Group Holdings Ltd's experience last year. However, the losses could be more substantial now due to the weakened Ringgit.
"If the company receives a favourable offer, it's rational for them to consider an exit. The Malaysian market has evolved significantly over the past seven years. Back then, the market was already on a downward trend, and China's financial standing was comparatively stronger," the source explained.
"Alternatively, they could explore collaboration with a robust joint venture partner to mitigate their risk exposure, akin to Singapore-based Oxley's strategy with local developers for properties near the KLCC area, in Section 16, Petaling Jaya, and Beverly Heights in Ampang," the source said.
Agile Group incurred substantial losses amounting to RM371.21 by selling its incompleted Embassy Garden project in Ampang, Kuala Lumpur, to Law Developments Sdn Bhd for RM310 million in November 2023.
According to reports, Agile Group said that the sale of RM310 million would result in an instant cash inflow for the company, which would enhance liquidity, make it easier to meet working capital requirements for the development of additional real estate projects, and simplify its current operations and organisational structure.