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China’s actual property default threat for Fantasia, Sinic amid Evergrande disaster


A pedestrian crosses a street in front of residential buildings in Beijing, China.

Qilai Shen | Bloomberg | Getty Images

In the wake of Evergrande’s debt crisis, there are growing signs of stress in the Chinese real estate market after a developer failed to make a bond payment on Tuesday.

Rating agencies have downgraded the Chinese developers Fantasia Holdings and Sinic Holdings because of the risks posed by their tight cash flow situation.

Fantasia did not repay a bond due on Monday, it said in a filing with the Hong Kong stock exchange.

The company has ceased trading in its shares since September 9, until further notice, it said. These stocks have plummeted nearly 60% since the start of the year.

Evergrande contagion fears

However, the effects of Fantasia would be much less compared to Evergrande.

Evergrande is the world’s most heavily indebted property developer with debt of $ 300 billion, while Fantasia has total debt of 82.9 billion yuan ($ 12.8 billion) according to its half-yearly financial statements.

We believe the existence of these bonds means that the company’s liquidity position could be more tight than we previously anticipated.

Fitch Ratings announced Monday that Fantasia had been downgraded from “B” to “CCC-” and said the company’s cash flow situation “could be tighter than we previously expected”. “CCC”, according to its website, means “significant credit risk” with a “real possibility” of default. A “B” rating means that there is a substantial risk of default but a limited margin of safety remains.

In a report released Monday evening prior to the company’s filing, Fitch highlighted the existence of a private bond that was not disclosed in the company’s financial reports and said Fantasia had a late payment of $ 100 million for it Loan made.

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“We believe the existence of these bonds means that the company’s liquidity position may be more tight than we previously anticipated. The default also casts doubt on the company’s ability to repay its due dates on time,” Fitch wrote.

“This incident also casts doubt on the transparency of the company’s financial disclosures,” he added.

China’s real estate sector has come into the spotlight since Evergrande’s debt problems emerged.

Evergrande – the second largest developer in China by revenue – has issued two default warnings, which is sparking investor worries. She previously missed interest payments on two US dollar offshore bonds and struggled to raise cash to pay suppliers and investors.

Other developers have also been battling for cash, suggesting further hardship in the industry.

Guangzhou R&F is another real estate developer on investors’ radar. According to Reuters, it raised up to $ 2.5 billion last month through borrowing from major shareholders and selling a subsidiary.

Fitch revised its outlook from stable to negative last month, citing its limited access to finance amid ongoing refinancing needs.

Industry watchers were concerned about the impact and possible contagion from the Evergrande crisis hitting China’s growth. According to analysts’ estimates, the real estate sector in China accounts for up to 15% of the Asian giant’s gross domestic product.

Many Asian high yield funds are also dominated by Chinese real estate developers.

According to data from Refinitiv Eikon, the returns on the ICE Bofa High Yield Asia Emerging Markets Corporate Plus Index have fallen to -9.89% since the beginning of the year.

Sinic will likely fail

S&P Global Ratings downgraded Sinic Holdings from “CCC +” to “CC” on Tuesday morning.

According to the agency’s website, “CCC” means the company is currently vulnerable and dependent on favorable business, financial and economic conditions to meet financial obligations. “CC” means that the company is very vulnerable. Although the default has not yet occurred, it is believed to be practically certain.

“We have downgraded the rating because we believe Sinic has gotten into a serious liquidity problem and its debt servicing ability is nearly exhausted,” S&P wrote.

The rating agency said the Chinese developer is defaulting on its $ 246 million offshore bond due Oct. 18, S&P said.

Sinic has total debt of $ 14.2 billion, as shown in the half-year financial statements. The Chinese real estate developer’s shares have been suspended since September 20th.