Real estate default risk in China for Fantasia and Sinic amid the Evergrande crisis


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

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

Rating agencies have downgraded Chinese developers Fantasia Holdings and Sinic Holdings due to risks associated with their tight cash flow situation.

Fantasia failed to repay a bond that matured on Monday, she said in a document filed with the Hong Kong Stock Exchange.

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

Evergrande fears contagion

Fantasia’s fallout, however, would be much weaker than Evergrande’s.

Evergrande is the world’s most indebted real estate developer with $ 300 billion in liabilities, while Fantasia has total liabilities of 82.9 billion yuan ($ 12.8 billion), according to its first-half financial statements.

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

Fitch Ratings said Monday it downgraded Fantasia to “CCC-” from “B”, saying the company’s cash flow situation “may be more strained than we previously expected.” According to its website, “CCC” stands for “substantial credit risk“, with a “real possibility” of default. A “B” rating means that a significant risk of default is present, but a limited margin of safety remains.

In a report released ahead of the company’s filing on Monday night, Fitch pointed out the existence of a private surety that was not disclosed in the company’s financial reports, and said Fantasia made a late payment of $ 100 million owed on that bond.

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“We believe that the existence of these obligations means that the liquidity situation of the company could be more strained than expected. The late payment also raises doubts about the ability of the company to repay its maturities on time,” said writes Fitch.

“In addition, this incident casts doubt on the transparency of the company’s financial information,” he added.

The Chinese real estate sector has been in the spotlight since the onset of Evergrande’s debt problems.

Evergrande – the second-largest developer in China by sales – has twice warned that it could default, triggering investor concerns. He has so far missed interest payments on two offshore bonds in US dollars and has worked to raise funds to pay suppliers and investors.

Other developers have also fought for cash, signaling further distress in the industry.

Guangzhou R&F is another real estate developer on the investor radar. He said last month he was raising up to $ 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 financing amid continued refinancing needs.

Industry watchers have expressed concern about the fallout and possible contagion of the Evergrande crisis affecting China’s growth. The real estate sector in China accounts for up to 15% of the Asian giant’s gross domestic product, according to analysts’ estimates.

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

The returns of the ICE Bofa High Yield Asia Emerging Markets Corporate Plus Index have fallen to -9.89% year-to-date, according to data from Refinitiv Eikon.

Sinic may default

On Tuesday morning, S&P Global Ratings downgraded Sinic Holdings’ rating from “CCC +” to “CC”.

According to the agency’s website, “CCC” means the company is currently vulnerable and dependent on favorable business, financial and economic conditions to meet its financial commitments. “CC” means the business is very vulnerable. While the fault has not yet occurred, it should be a near certainty.

“We lowered the rating because we believe Sinic has encountered a serious liquidity problem and its debt service capacity is nearing depletion,” S&P wrote.

The rating agency said the Chinese developer is set to default on its $ 246 million dollar-denominated offshore bond due October 18. 18, S&P said.

Sinic has total liabilities of $ 14.2 billion, according to its first half financial statements. The actions of the Chinese real estate developer have been at a standstill since September 20.


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