Troubled rental platform Danke has repaid 86% or around RMB 1.3 billion ($201 million) of tenant loans underwritten by Tencent-backed WeBank, the bank’s chairman Gu Min said on Dec. 29.
Why it matters: The rental loan rescue plan is a positive sign for the survival of Danke, whose debt-fueled expansion led to public outcry and threatened the company’s future. The move may also release some pressure from WeBank, which faces questions about its exposure to Danke’s debt, as well as its due diligence and risk assessment processes.
- Neither WeBank nor Danke responded to TechNode’s requests for comment.
The Danke incident: In November, the local government of Beijing set up a special team to handle Danke, which was reportedly on the verge of bankruptcy and facing a $400 million cash shortfall.
- In the prior months, thousands of Danke tenants found themselves evicted from their apartments but still contractually obligated to pay rent—a result of landlords halting their collaboration with the platform, saying they hadn’t received their payments.
- Regulators reportedly spoke to Danke’s competitors Ziroom and 5j5j to take over its business. No agreement was reached due to Danke’s cash flow problems.
- On Dec. 2, an evicted tenant in Guangzhou committed suicide.
WeBank to the rescue: Just days after the suicide, WeBank announced two separate plans to help tenants in debt to the bank—and save Danke from collapse.
- On Dec. 3, WeBank announced it would extend by three years all outstanding rental loans for tenants whose contracts had been terminated early, waiving both the principal and interest payments.
- On Dec. 4 (in Chinese), the Tencent-backed bank announced it would transfer tenant debt to Danke, which alleviates some of the immediate risks around the platform’s business model and grants it some leeway with regulators.
- More than RMB 1.3 billion of loans from 136,100 tenants were repaid to WeBank under the debt transfer scheme as of Dec. 27, Gu said. Danke owed RMB 1.6 billion to WeBank for 161,845 loans as of early December.
- Gu stressed that WeBank has had a steady year for profits, and that its assets are enough to cover its exposure to Danke.
The Danke model: Under New York-listed Danke’s original business model, tenants would borrow a year’s worth of rent from a bank, like WeBank, when signing an annual lease with the rental platform.
- The bank would then pay the year’s rent to the platform upfront, which would repay the landlord in quarterly installments. Tenants would pay back their loan to the bank in monthly payments.
- At the end of 2019, 91% of tenants paid rent via loans, compared to 75.8% in 2018 and 65.9% in 2017, Caixin reported citing Danke.
- The company was using bank’s upfront payments to fuel its expansion, racking up debt without turning any profits. In November, it reportedly couldn’t pay its staff.
READ MORE: CHINA VOICES | Crisis at Danke has China worrying about out of control fintech