China property default risk for Fantasia, Sinic amid Evergrande
A pedestrian crosses a road in front of residential buildings in Beijing, China.
Qilai Shen | Bloomberg | Getty Images
On the heels of Evergrande’s debt crisis, there are increasing signs of stress in China’s property market after one developer failed to make a bond payment on Tuesday.
Ratings agencies have downgraded Chinese developers Fantasia Holdings and Sinic Holdings over risks from their strained cash flow situations.
Fantasia did not repay a bond that matured on Monday, it said in a filing to the Hong Kong exchange.
The firm has halted trading of its shares since Sept. 9 until further notice, it said. Those shares have plummeted nearly 60% year-to-date. CNBC reached out to the company but did not immediately get a response.
Evergrande contagion fears
The fallout from Fantasia, however, would be small compared with Evergrande.
Evergrande is the world’s most indebted property developer with liabilities of $300 billion, while Fantasia has total liabilities of 82.9 billion yuan ($12.8 billion), according to its first-half financial statement.
We believe the existence of these bonds means that the company’s liquidity situation could be tighter than we previously expected.
Fitch Ratings on Monday said it downgraded Fantasia to “CCC-” from “B,” saying the firm’s cash flow situation “could be tighter than we previously expected.” According to its website, “CCC” means “substantial credit risk,” with a “real possibility” of default. “B” rating means material default risk is present, but a limited margin of safety remains.
In a report released before the company’s filing on Monday night, Fitch highlighted the existence of a private bond that was not disclosed in the firm’s financial reports, and said Fantasia had made a late payment of $100 million due on this bond.
“We believe the existence of these bonds means that the company’s liquidity situation could be tighter than we previously expected. The late payment also raises doubts about the company’s ability to repay its maturities on a timely basis,” Fitch wrote.
“Furthermore, this incident casts doubt on the transparency of the company’s financial disclosures,” it added.
China’s property sector has come under the spotlight since the debt problems of Evergrande surfaced.
Evergrande — the second-largest developer in China by sales — has warned twice it could default, setting off investor worries. It missed interest payments on two U.S.-dollar offshore bonds so far, and has been scrambling to raise cash to pay suppliers and investors.
Other developers have also been scrambling for cash, signaling further distress in the sector.
Guangzhou R&F is another real estate developer on the radar of investors. It said last month it was raising as much as $2.5 billion by borrowing from major shareholders and selling a subsidiary, according to Reuters.
Fitch revised its outlook from stable to negative last month, citing its limited access to funding amid ongoing refinancing needs.
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