In recent days, rumors have been circulating that Vanke, a leading real estate company, is on the verge of a financial crisis. This speculation started due to significant fluctuations in the prices of its dollar-denominated bonds issued overseas. Although Vanke has issued a statement asserting that there are no issues with the company's fundamentals, online discussions continue to speculate that this mixed-ownership real estate firm might follow Evergrande, Sunac, and Country Garden into a debt crisis.

Some netizens have questioned why Vanke doesn't repurchase its own dollar bonds if there are no problems. After all, buying back at a low price is much more cost-effective than paying back the principal in a year.

Many people might not understand the logic behind this question, so let's break it down simply.

When dollar bonds are issued overseas, the financing scale is calculated based on the face value. For example, a $100 dollar bond can bring Vanke $100 in cash, with interest paid annually. When the dollar bond matures, it is repaid at its face value, which means $100 is returned to the investors, settling the transaction.

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At the same time, dollar bonds can be traded on the market, similar to stocks. If you hit a new stock at the IPO price, you can sell it on the day the stock goes public. The transaction price of dollar bonds is unrelated to their face value; they might be traded at less than $100 or more than $100. By the way, don't assume that a transaction price below par ($100) for dollar bonds indicates a problem with the issuing company. Huawei's dollar bonds also trade below par, and no one would think there's a problem with Huawei's financial health, right?

The prices of some of Vanke's dollar bonds have dropped significantly in recent days. Note that this refers to the transaction prices in the secondary market, not the face value. Those who have understood the above should know that the face value remains unchanged, always $100.

For Vanke, it is indeed possible to buy back the bonds it issued to save on principal repayments. Suppose a dollar bond is traded at $60; Vanke could buy it back for only $60, without having to pay the $100 principal when it matures, saving $40 instantly. The fact that Vanke has not repurchased its bonds leads netizens to conclude that it's not that Vanke doesn't want to take advantage of this opportunity, but that it has run out of money.

This logic seems plausible at first glance, but upon closer examination, it doesn't hold up. Huawei's dollar bond prices are also below par; according to this logic, why not buy them back? Yet, Huawei hasn't taken this opportunity either. Moreover, two more critical points need to be considered.

First, the dollar bonds with significant price fluctuations are not the ones maturing next year.

The dollar bonds maturing in March 2024 are priced at $93.4, and those maturing next July are at $85.3. Although they are also below par, they have not experienced the so-called "halved" or even more exaggerated discounts.Enterprises borrow money to meet medium-term or short-term liquidity needs. If they repurchase bonds as soon as they see the price of dollar-denominated debt fall, they might as well not take on debt at all, or issue fewer bonds. This is akin to taking out a mortgage to buy a house last year, only to face increased monthly payments due to rising interest rates this year. Most people won't choose to pay off their loans early just because they feel they are "at a disadvantage." Those who have the financial strength to do so would have taken out less of a loan or paid in full last year.

Secondly, not repurchasing dollar-denominated bonds with significant price drops is to ensure the ability to continue borrowing in the future. Credit is one of the most important elements of a company. If there is a problem with credit, in the most severe cases, it can push a company into a desperate situation, as seen with Evergrande and other real estate companies that have defaulted. The biggest issue Evergrande faces is that no one wants to buy its houses. Everyone is afraid of ending up with an unfinished Evergrande property, even with government guarantees. This reluctance stems from the large number of unfinished projects that have led to a collapse in credit.

Credit is needed for business operations and financing alike. Among the dollar-denominated bonds issued by Vanke, the ones with the most significant price drop are the ones maturing in 2029, currently trading at only $41.7, while another issue maturing in two years is trading at $65.7.

Repurchasing these two issues could save a substantial amount of principal. Why doesn't Vanke take such a big bargain?

Apart from the previously mentioned reason that repurchasing requires immediate repayment, which negates the purpose of financing, a more critical concern is the impact on credit. This could lead to difficulties in borrowing from the market in the future.

If Vanke took this bargain, the market might suspect that Vanke is actively shorting its own dollar-denominated bonds with the intention of exploiting investors. Issuing bonds at $100 and buying them back at $40, making a $60 profit, and then issuing new dollar-denominated bonds to borrow back the $40 spent on repurchases—what else could this be called but getting something for nothing?

Bond players are generally institutional investors with expertise, not to mention offshore dollar-denominated bonds, which are targeted at global professional investors. The trick of getting something for nothing can easily be seen through.

If you play this game, who will continue to play with you in the future? Rating agencies may also downgrade the ratings of Vanke's future bond issues. Investors who have been burned once are unwilling to be exploited again. Vanke's one-time deal would lead to a complete collapse of its credit in the offshore market. Its bonds might be ignored, or it might have to bear extremely high financing costs while still being treated as junk bonds.

Therefore, Vanke's decision not to repurchase dollar-denominated bonds is not due to a lack of funds but to avoid losing more for the sake of a small gain.Lastly, let's talk about Evergrande. The market price for a batch of US dollar bonds maturing in November 2023 is only 1.5 US dollars, while the price for those maturing in a year is 2.1 US dollars. Despite the plummeting prices of Evergrande's US dollar bonds, there has been no rush to the secondary market to repurchase them. Does everyone think that the only reason for this is Evergrande's lack of funds, or are there other reasons?

I've noticed a recent trend in the market where there is a force with malicious intent to short Chinese real estate companies. They exploit the general public's limited understanding of financial markets to deliberately amplify the risks associated with China's economy, including the real estate market and local government investment bonds. These individuals lurk among the people, spreading views that do not align with reality while posing as ordinary citizens, with the hope of undermining our country's financial security.

No wonder the national security department has spoken out, warning against "bearish", "short sellers", "bearish singers", and "embezzlers". The short sellers mentioned by the national security department are not limited to the stock market; they are targeting the entire Chinese financial market. Now, does this make sense in context?