China’s real estate industry has suffered its first dollar bond default since Evergrande slipped deeper into the crisis.
China’s real estate industry has suffered its first dollar bond default since the China Evergrande Group slipped deeper into crisis in recent weeks, fueling investor concerns about other heavily indebted borrowers and global contagion.
Fantasia Holdings Group Co., which develops high quality housing and urban renewal projects, was unable to repay a $ 205.7 million bond due Monday. That sparked a spate of rating downgrades to levels of default late Tuesday.
Creditors are now scanning the debt settlement calendars to find out where the next trouble spots could be in the increasingly strained real estate industry.
The stumble sparked greater fear in volatile markets during a holiday week in China and amid uncertainty over Evergrande, one of the country’s largest developers and largest junk bond issuer in Asia. The average price of Chinese high-yield dollar bills fell 1.3 cents on Tuesday, the worst slump since July, according to a Bloomberg index. Developer shares fell, with Sunac China Holdings Ltd. and China Aoyuan Group Ltd. fell at least 10% on Tuesday.
The Chinese authorities have maintained strict rules on debt, while measures to cool the housing market are curbing sales. There have been other examples of stress at other real estate firms in the past few days: Sinic Holdings Group Co. received a notice to repay some debt after defaulting two local interest payments. Tribes were established a few months ago. Sunshine 100 China Holdings Ltd. defaulted on dollar bills in August.
While Fantasia itself is less risky than Evergrande because of its smaller size for broader markets – it ranked 60th in the first quarter.
A major concern is opaque debt in the sector, which has been exposed in the past few days when acquaintances said that a largely unknown dollar bill, with an official due date of October 3, issued by a company called Jumbo Fortune Enterprises, is guaranteed by Evergrande . In the case of Fantasia, just weeks before the default, the company had stated that it was operating well, had sufficient working capital and had no liquidity problems. It sparked discomfort over hard-to-quantify commitments last week when it disproved a report that money had not been sent on a privately placed bond.
This private placement bond was “guaranteed by the company but does not appear to have been disclosed in the company’s financial statements,” despite the developer saying it has been preparing funds for the remaining $ 50 million of the securities due in early October, Fitch Ratings said in a report dated October 4. “We believe the existence of these bonds means that the company’s liquidity position could be more tight than we previously expected.”
The rapid turnaround was reflected in the credit market. The price indications for the dollar bond that defaulted this week were just 98 cents last week. In the international bond markets, it is rare for banknotes to appear this close to face value when they are on the verge of default. The other stocks of Fantasia, maturing in December and later, were already in dire straits.
One date in focus for investors is October 15, when Beijing-based Xinyuan Real Estate Co. will have to repay $ 229 million of outstanding dollar bonds. Fitch downgraded the company’s rating by one notch to CCC last month, citing the “increased refinancing risk” with the company’s upcoming October maturity.
Here is a rundown of the rating moves made late Tuesday in Asia on Fantasia:
- Fantasia’s long-term issuer rating was downgraded to Selective Default by S&P Global Ratings from CCC, which also reduced the score of the bonds due on Monday to D.
- Fitch Ratings cut its long-term default rating for foreign currency issuers to limited default on CCC- and said there is no grace period on the bond.
- Moody’s Investors Service has lowered its corporate family rating from B3 to Ca.
There was no immediate response from Fantasia on Wednesday to a request for comment on their debt settlement plans.