Mainland Developer Fullsun Says Creditors Have Seized Hong Kong Project

Hong Kong-listed Fullsun International lost control of its maiden investment in the city this week, with the developer announcing on Monday that receivers have been appointed for its 79-unit residential asset at 6 La Salle Road.

The remaining units and parking spaces at Fullsun’s La Salle Residence have been taken over by creditors seeking repayment of HK$371.25 million ($47.6 million) in unpaid loans, following the group’s eight-month trading suspension in the past year and earlier bond defaults.

An unnamed third party had notified the group of the appointed receivers on 20 January, according to the announcement. This came after Hang Seng, a Fullsun creditor on the project, had sent a notice to the company on 4 January to transfer its interest in the facility agreements, security documents and the property to the third party, also referred to as the assignee.

Fullsun parent group Fujian Fusheng, which led a wave of bond defaults by Chinese developers beginning in 2020, is expecting four bonds totalling RMB 5 billion to mature in 2022, according to local news reports.

Low Sales at La Salle

Since Fullsun launched the sale of condos at La Salle Residence in 2019, the developer has sold 43 units, representing less than 55 percent of the total number of homes in the project, according to public records posted by the developer.

Fullsun was said to have postponed the sales of the first tranche of 30 units in July 2019, at the height of Hong Kong’s street protests, and as of December that year had sold only 15 homes.

The 18-storey building in Ho Man Tin, an upmarket residential area in central Kowloon, yields 32,817 square feet (3,049 square metres) of floor area.

Local developer Easyknit Group broke ground on the 8,060 square foot site in 2014 and sold the nearly completed project to Fullsun about four years later for HK$920 million. Since that acquisition, Fullsun has taken in HK$407 million in sales at the project, representing less than half of the earlier purchase price.

Full-On Financial Crisis

Fullsun as of 30 June of last year had total bank and other borrowings of approximately RMB 3.78 billion, while its bank balances and cash amounted to just RMB 417 million.

The seizure of its Ho Man Tin project came about two months after Fullsun had resumed trading after an eight-month suspension, due in part to the developer’s delay in the publication of its 2020 annual results.

About two months before Fullsun lost control of the residential asset, parent company Fusheng Group announced the resignation of its chief financial officer, Xu Jiancai, in a filing to the Shanghai Stock Exchange.

Rushing to raise cash, Fullsun last March agreed to sell a combined 72,800 square feet of floor area at Enterprise Square Three in Kowloon for a consideration of HK$790 million to a company held by businessman Lin Xiaowen, expecting to recognise a loss of RMB 157.1 million (now $24.7 million). The sale took place just three years after the developer had purchased the properties spanning five floors in the building for HK$1.3 billion from CSI Properties and Phoenix Property Investors.

In January 2020, Fusheng and Shimao Group announced a new platform to develop the Fuzhou-based builder’s projects, with media reports at the time indicating that China Orient Asset Management was a part of the joint venture. The initiative represented Shimao’s latest effort to acquire projects from developers struggling under China’s tighter lending conditions.

The joint venture announcement followed Fusheng’s two-year expansion plan on the mainland that ended in 2019 with the group stumbling into a financial crisis. The developer achieved RMB 63 billion in sales that year — 30 percent below its initial goal of RMB 90 billion.

Ongoing Contagion

In its recent announcement, Fullsun executive director and chief executive Pan Haoran notified investors that the group’s management is negotiating with lenders regarding refinancing, extension or restructuring of its borrowings.

“The appointment of receivers reflects a growing trend in China’s distressed markets,” said Brock Silvers, chief investment officer at Hong Kong-based Kaiyuan Capital. “Without a likely white knight, in the current environment, with onshore assets increasingly at risk, the outlook for Fullsun seems increasingly cloudy.”

Also on the mainland, Guangdong-based Hopson Development Holdings, which just a few months ago was proposing to purchase Evergrande’s property management unit, saw PriceWaterhouseCoopers resign as the company’s auditors in January, according to a statement to the Hong Kong exchange.

“Any hope that Hong Kong would be insulated from mainland China’s real estate insolvency crisis was eviscerated last week by the events at Fullsun International and Hopson Development,” Silvers said.