Fantasia, another debt-laden Chinese property developer, defaults on US$205 million bond, as Evergrande crisis rolls on
- The missed payment on Monday will add to fears about the financial health of the Chinese property sector
- Earlier on Monday, Fitch Ratings downgraded Fantasia’s long-term foreign currency issuer rating to ‘CCC’ from ‘B’, citing the risk of default
Fantasia Holdings Group, the Shenzhen-based property developer founded by the niece of a former Chinese vice-president, has failed to repay US$205 million of debt due on Monday.
“The company did not make the payment on that day. The board and the management of the company will assess the potential impact on the financial condition and cash position of the group under the circumstances.”
Fantasia’s shares have been suspended in Hong Kong since September 29 and remained suspended on Monday.
The company issued the US$500 million senior note due this month in September 2016. It carried a 7.37 per cent interest rate. On completion of a tender offer a few months ago to buy back some of the notes, the remaining unpaid amount came to US$205.65 million, Fantasia said.
The bond prospectus specifies an event of default when the principal is not repaid on time when the bond matures, while the interest payment carries a 30-day grace period.
US money manager buys Evergrande debt while others turn away from crisis
Earlier on Monday, Fitch Ratings downgraded Fantasia’s long-term foreign currency issuer rating to “CCC-” from “B”, citing the risk of default on its upcoming US dollar bonds, tighter than expected offshore liquidity and lack of transparency.
The agency was surprised by Fantasia’s recent confirmation that it had used US$102 million of the US$200 million offshore cash balance it had at the end of August to repay a previously undisclosed private bond on September 28.
“Fantasia said it intends to transfer funds needed to repay the [US$205 million] due on 4 October 2021 to the trustee accounts, but Fitch has not been able to ascertain if it has done so,” the agency said on Monday.
The developer has US$1.9 billion of offshore bonds and 6.4 billion yuan of onshore bonds that are either maturing this year or next year, or subject to risks that bondholders would exercise their right to demand early repayment, Fitch noted.
It said it would further downgrade its rating upon confirmation that it had failed to repay the US dollar bond maturing on Monday.
Since China stepped up its scrutiny of developers with its “three red lines” leverage targets in August last year, the taps have dried up for some industry delinquents including China Evergrande.
Other companies that failed the test included Guangzhou R&F Properties and Sichuan Langang, according to a report published by Beike Research Institute in August.
Is Evergrande too big to fail?
Evergrande had 1.97 trillion yuan (US$305 billion) in total liabilities as of June 30, and concerns have been mounting this year about its ability to service its massive debt load, after it failed to repay contractors and suppliers on time.
It remained unclear whether Evergrande made a coupon payment of US$83.5 million on offshore debt due on September 23, or a separate payment of US$45.2 million last week. The company has a 30-day grace period before it can be declared in default on the bonds.
Fantasia was founded in 1996 by Zeng Jie, the niece of former vice-president Zeng Qinghong.
Trading in the company’s shares was halted last Wednesday pending an announcement in relation to a proposed “very substantial” disposal.
They last traded at 56 HK cents, having fallen 58.5 per cent from the start of the year.
