FINANCE

Fantasia in the Evergrand Crisis, China’s property default risk for cynic


Pedestrians cross the street in front of a residential building in Beijing, China.

Kilai Shen | Bloomberg | Getty Images

In Evergrand’s debt crisis, China’s property market is showing signs of increasing pressure when a developer failed to make bond payments on Tuesday.

Rating agencies downgraded Chinese developer Fantasia Holdings and Scenic Holdings due to the risk from their cash flow situation.

Fantasia did not pay a mature bond on Monday, it said in a filing on the Hong Kong Exchange.

The company has stopped trading its shares from September until further notice. Those shares are down about 60% year-over-year.

Risk of evergreen infection

Fall from Fantasia, however, will be much smaller than Evergrand.

Evergrande is the world’s most indebted property developer with দায় 300 billion in liabilities, while Fantasia’s total liabilities are 82.9 billion yuan ($ 12.8 billion), according to its first-quarter financial statements.

We believe the existence of these bonds means that the company’s liquidity situation may be tougher than our previous expectations.

Fitch Ratings said Monday that it has downgraded Fantasia from “B to CCC,” adding that the firm’s cash flow situation “may be tougher than we previously expected.” According to its website, “CCC” means “substantial credit risk”, including “real probability” of default. A “B” rating means material default risk exists, but a limited margin of security remains.

In a report released before the company’s filing Monday night, Fitch highlighted the existence of a private bond that was not disclosed in the firm’s financial report, and said Fantasia paid 100 100 million late because of the bond.

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“We believe the existence of these bonds means the company’s liquidity situation may be tougher than we previously expected,” Fitch wrote.

“Also, this incident casts doubt on the transparency of the company’s financial disclosures,” it added.

China’s property sector has been under discussion ever since Evergrand’s debt problem came to the fore.

Evergrande has warned that it could double the default, allaying the concerns of China’s second-largest developer-investors through sales. It has so far missed interest payments on two US-dollar offshore bonds and is struggling to raise cash to pay suppliers and investors.

The Evergrand crisis could hurt China’s growth and industry observers are worried about a possible transition. According to analyst estimates, China’s real estate sector accounts for more than 15% of the Asian giant’s gross domestic product.

Many Asian high-yield bond funds are influenced by Chinese real estate developers.

Chance of cynic default

On Tuesday morning, S&P Global Ratings downgraded Scene Holdings from “CCC +” to “CCC”.

According to the company’s website, “CCC” means that the firm is currently at risk and dependent on favorable business, financial and economic conditions to meet financial commitments. “CC” means the firm is extremely risky. Although the default hasn’t happened yet, it’s expected to be a virtual confirmation.

“We downgraded the rating because we believe Cynic has a serious liquidity problem and is almost out of debt,” S&P wrote.

The ratings agency said the Chinese developer wanted to default on its 18 246 million offshore dollar-denominated bond on October 18. 18, says S&P.

Cinick’s total liabilities stood at .2 14.2 billion, according to its first-half financial statements. Shares of the Chinese real estate developer have been closed since September 20th.



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