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China Vanke’s First Public Commercial REIT Debut Ends Flat

China Vanke’s inaugural public commercial real estate investment products closed unchanged on their debut on Tuesday, reflecting cautious sentiment towards China’s second-largest developer amid an extended downturn in the property market.

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The CICC-SCPG Consumption Infrastructure Real Estate Investment Trust (REIT), listed in Shenzhen, initially slipped by as much as 3% during early trading before rebounding to close flat by the end of the market session. This REIT, backed by shopping centers owned by SCPG Holdings, Vanke’s commercial property arm, emerged one-and-a-half months following the approval of three other REITs in the same batch.

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State-backed Vanke, the second-largest property developer in China by sales, grapples with short-term liquidity pressures and operational challenges. Its onshore shares have plummeted by 29% since the year’s outset, nearing their lowest levels since 2014.

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The launch of these REITs follows China’s expansion of the REIT scope last year to encompass commercial properties, aiming to bolster the beleaguered property sector. These investment vehicles enable investor funds to flow to property owners while affording developers an avenue to divest their projects.

Although approximately 3.26 billion yuan ($449.88 million) was raised through this REIT issuance, the sum remains modest compared to Vanke’s expenditure. Analyst John Lam of UBS expressed concern over the pace of cash position decline, highlighting a monthly cash burn of 5.6 billion yuan. With a total cash position of 83.1 billion yuan as of March 2024, the current levels can only sustain 15 months of cash outflow under current market conditions and debt refinancing prospects.

Shenzhen Metro Group, a state-owned entity and Vanke’s largest shareholder, subscribed to 29.8% of the REIT units.

Vanke’s recent financial report unveiled a second consecutive quarterly loss for the January to March period, alongside a decline in cash reserves, attributed to sharp decreases in revenue and margins.

Despite a 28% decline in 2023, the CSI REITs Index has rebounded by approximately 7% this year.

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