Another Chinese property developer defaulted on offshore bond

Chinese property developer Fantasia Holdings Group has failed to repay $205 million of debt due on Monday, adding to fears about the financial health of the country’s massive real estate sector after the liquidity crisis at China Evergrande Group.

“Under the indenture governing the 2021 notes, all outstanding principal amount of the 2021 notes shall be due on 4 October 2021,” Fantasia said in a filing to Hong Kong’s stock exchange late 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 issued the $500 million senior note in September 2016, which carried a 7.37 per cent coupon rate. On completion of a tender offer a few months ago to buy back some of the notes, the remaining unpaid amount came to $205.65 million, the company 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.

Fantasia said in a statement to Chinese media that “the company is experiencing a temporary tight liquidity condition due to Covid-19 resurgence, industry policy and macroeconomic situation.”

It added that the company has set up a emergency team with help from the local government, financial institutions and financial advisors and is working to make a plan to resolve risks.

Notably, the missed payment came just two weeks after the homebuilder said it had no liquidity issues and had “already prepared the funds” to redeem its bonds due this month. It had obtained HK$1.1 billion ($142 million) of financing from Chiyu Bank in June, it said at the time.

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 rating agency was shocked by Fantasia’s recent confirmation that it had used $102 million of the $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 [$205 million] due on 4 October 2021 to the trustee accounts, but Fitch has not been able to ascertain if it has done so,” Fitch said.

The developer has $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 introduced the so-called “three red lines” in August last year to tighten scrutiny on developers’ financing, 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.

Fantasia was founded in 1996 by Zeng Jie, the niece of former vice-president Zeng Qinghong.

According to the China Index Academy, a Chinese real estate industry consultancy, Fantasia’s sales reached 40.87 billion yuan in the first nine months of the year year, ranked the ninth among Chinese developers.

The company had 83 billion yuan in total liabilities by the end of June, rising by 126.6 per cent from the 36.6 billion yuan at the end of 2016.