Fantasia Misses $205M Bond Payment, Fitch Slashes Issuer Rating

Hong Kong-listed Fantasia Holdings said Monday that it failed to make a principal payment on an offshore bond that came due on the same day, adding uncertainty to a Chinese property sector already rocked by the financial crisis at fellow Shenzhen-based developer Evergrande.

After pursuing a repurchase plan of the 2016-vintage 7.375 percent senior notes, Fantasia remains on the hook for $205.7 million in principal out of the total $500 million issuance. The entire outstanding principal was due on Monday.

“The company did not make the payment on that day,” the developer said in a filing with the Hong Kong stock exchange. “The board and the management of the company will assess the potential impact on the financial condition and cash position of the group under the circumstances.”

A Fantasia subsidiary also on Monday missed a RMB 700 million ($108 million) loan payment owed to the property services unit of developer Country Garden, according to an HKEX filing by that company. Trading in Fantasia’s shares remains halted until further notice after a suspension took effect last Wednesday, the company said.

Credit Agencies Pounce

Founded by Baby Zeng Jie, the niece of former vice president of China Zeng Qinghong, Fantasia saw its credibility take a hit Monday when Fitch Ratings downgraded the mid-sized developer over late payments and shoddy book-keeping.

Fitch cited media accounts that said Fantasia missed a $100 million payment due on 28 September to bondholders who exercised put options on a private bond. “The bond was guaranteed by the company, but it does not appear to have been disclosed in the company’s financial reports,” the agency said.

Fantasia said it transferred the funds to the relevant account on 28 September and the bondholders received the amount the day after. The company said it has prepared funds for the remaining $50 million of the bond that comes due this month.

In light of the uncertainty and lack of transparency, Fitch slashed Fantasia’s long-term foreign-currency issuer default rating by four notches, to CCC- from B. The agency also downgraded the senior unsecured rating and the rating on Fantasia’s outstanding US dollar senior notes to CCC- from B.

The demotions came after Moody’s Investors Service last week cut Fantasia’s corporate family rating to B3 from B2 and downgraded the senior unsecured bond rating to Caa1 from B3, while S&P downgraded Fantasia to CCC from B and placed the company on credit watch negative.

With a market capitalization of HK$3.23 billion, and contracted sales last year of RMB 49.2 billion, Fantasia is a fraction of the size of Evergrande, but its struggles raise fears that a financial crisis may be spreading in China’s property industry.

Developer Illness Spreads

In another sign of potential contagion concerns on Monday, Fitch lowered the long-term issuer default rating of Shanghai-based developer Sinic Holdings to C from CCC. The downgrade reflects the agency’s view that a default-like process has begun, following Sinic’s announcement that, on 18 September, certain subsidiaries missed interest payments on onshore financing arrangements and enforcement action was taken by one of its offshore creditors.

On 20 September, trading in Sinic’s Hong Kong-listed shares was halted after the price plunged 87 percent in that day’s session.

Meanwhile, a widely expected restructuring of China Evergrande Group, the world’s most-indebted developer, continued to take shape on Monday, with Hopson Development reportedly set to buy a 51 percent stake in Evergrande’s property management division for more than HK$20 billion ($2.6 billion).

Trading in shares of both Evergrande and its Evergrande Property Services remained halted on Tuesday, after Evergrande Property Services notified the Hong Kong stock exchange on Monday that an announcement about “a possible general offer for the shares of the company” was forthcoming.

Evergrande missed its second offshore bond payment last Wednesday, when it failed to come up with $83.5 million in interest due to investors. On that same day, Evergrande announced an agreement to sell a $1.5 billion stake in Shengjing Bank to a state-owned asset management company.