China property default risk for Fantasia, Sinic amid Evergrande crisis
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China, Beijing: A pedestrian walks across a street in front residential buildings.
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The heels of Evergrande’sChina’s debt crisis is causing stress on the property market, as one Chinese developer has failed to make Tuesday’s bond payments.
Rating agencies have downgraded Chinese developers Fantasia Holdings Sinic HoldingsThey are willing to take on the risk of a tight cash flow situation.
Fantasia stated that it did not repay the bond due Monday in a filing submitted to Hong Kong Exchange.
According to the firm, trading has been halted since Sept. 9, and it will not resume until further notice. These shares fell nearly 60% in the past year.
Evergrande contagion fears
Fantasia’s fallout would however be significantly less than Evergrande.
According to the company’s first half financial statements, Evergrande has liabilities totalling $300 billion. Fantasia however has liabilities totalling 82.9 billion Yuan ($12.8 Billion).
These bonds could indicate that liquidity in the company is likely to be more tight than previously thought.
Fitch Ratings said Monday that it had downgraded Fantasia from “B” to “CCC+”, stating the firm’s cashflow situation could be “tighter than we expected”. Its website indicates that the term “CCC”, which means “substantial risk of credit default,” is used to describe a firm’s “real potential” for default. The rating “B”, which means there’s a risk of material default, is not a guarantee that the creditor will be able to repay it.
Fitch released a report before Monday’s company filing. It highlighted that there was a private bond, which wasn’t disclosed in financial reports. Fitch also stated Fantasia had paid a $100 million late payment on the bond.
We believe that these bonds indicate that the company could have a tighter liquidity position than previously anticipated. Fitch stated that the late payment raises questions about whether or not the company can repay its maturities in a timely manner.
It added that “Furthermore this incident casts doubt upon the transparency of the firm’s financial disclosures.”
The spotlight has been on China’s real estate sector since the debt problems of Evergrande surfaced
Evergrande — the second-largest developer in China by sales — has warned twice it could default, setting off investor worries. Due to missing interest payments on 2 U.S. dollars offshore bonds, Evergrande has struggled to find cash to pay investors and suppliers.
Evergrande’s crisis has been causing concern among industry watchers. Analyst estimates suggest that China’s real estate industry accounts for 15% of its gross domestic product.
Chinese realty developers are also dominant in many Asian high-yield bonds funds.
Sinic most likely to default
S&P Global Ratings on Tuesday morning downgraded Sinic Holdings from “CCC+” to “CC.”
According to agency website, the term “CCC” means that the company is at present vulnerable. It depends on financial, economic and business conditions in order to fulfill financial commitments. The firm’s vulnerability is high if it has the code “CC”. Although default is not yet a certainty, it’s almost certain.
“We lowered the rating because we believe Sinic has run into severe liquidity problem and its debt-servicing ability has almost been depleted,” S&P wrote.
Rating agency S&P said the Chinese developer was likely to default in October on its $246million offshore dollar-denominated bond. Sinic’s local subsidiaries have already failed to make $38.7 million in interest payments on two onshore yuan-denominated bonds that were due Sept. 18, S&P said.
Sinic had $14.2 billion of total liabilities, according to its financial statement for the first half. The shares of this Chinese real estate developer were halted on Sept. 20.
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