Chinese developer Fantasia can't pay its debts. That's stoking real estate fears

Fantasia Holdings, a Shenzhen-based developer, missed repaying $206 million price of bonds that matured Monday, the corporate mentioned in a stock exchange filing. It is now assessing “the potential impact on the financial condition and cash position of the group,” it added.
Separately, the property administration unit of Country Garden, China’s second largest developer by gross sales after Evergrande, mentioned in a filing that Fantasia had didn’t repay an organization mortgage of about 700 million yuan ($109 million). Fantasia had knowledgeable the corporate that it might most likely “default on [its] external debts,” Country Garden Services added.

S&P and Moody’s slapped “default” credit score scores on Fantasia and mentioned the non-payment of principal would doubtless additionally put the corporate in default on its remaining bonds.

“The downgrade follows Fantasia’s announcement … that it had missed payment on its $205.7 million bond due on the same day, and reflects our expectation of weak recovery prospects for Fantasia’s bondholders after its default,” mentioned Celine Yang, a senior analyst at Moody’s.

Fantasia shares had been suspended on Tuesday however shares of Country Garden Services tumbled 3.2% in Hong Kong. Country Garden Holdings misplaced 2.8%.

Defaults may hit development

The information revived fears that debt woes are deepening in China’s overextended property sector, which accounted for 29% of excellent loans issued by Chinese banks in yuan within the second quarter of 2021. The sector is very important to China’s financial system — actual property and associated industries account for round 30% of GDP.

“The [Chinese] property sector is worrisome,” wrote Larry Hu and Xinyu Ji, China economists for Macquarie Group, in a analysis notice on Tuesday.

Fantasia’s default reveals that Evergrande’s troubles “could dampen the sentiment for homebuyers, developers and banks, causing more developers to run into a liquidity crunch,” they mentioned.

The outlook for the Chinese property market will not be encouraging. Property gross sales within the high 30 Chinese cities plunged 31% in September from a 12 months in the past, based on Macquarie’s estimates.

Foreign investors are losing out in Evergrande's battle to survive

Evergrande’s debt disaster has unsettled world buyers in current weeks, elevating issues a couple of potential domino impact on the broader Chinese financial system and monetary markets.

The firm’s issues have been brewing for greater than a 12 months, after Beijing began reining in the true property sector in August 2020 to curb extreme borrowing to stop the market from overheating.

Earlier this 12 months, the Chinese authorities made it clear that it might prioritize “common prosperity” in its coverage objectives and tame runaway house costs, which it has blamed for worsening earnings inequality and threatening financial and social stability.

Evergrande’s liquidity disaster has escalated in current months. The firm warned buyers of its money movement disaster in September, saying that it may default if it was unable to boost cash shortly. In the previous few weeks, it missed at the very least two bond curiosity funds.

What's next for Evergrande: Bailout, breakup or default?

“While Evergrande’s problems are unlikely to trigger a Lehman moment, they will aggravate the ongoing property sector slowdown,” mentioned Louis Kuijs, head of Asia economics at Oxford Economics, in a report on Tuesday.

“Given the large overall footprint of the residential real estate sector via ‘backward linkages’ to sectors such as steel, its slowdown will weigh significantly on overall economic growth,” he mentioned.

Nevertheless, Chinese policymakers seem like standing agency. Last week, the People’s Bank of China and the banking regulator said that they’d defend homebuyers. Their assertion made no point out of builders.

— Anna Cooban contributed to this text.

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