Caixin
Oct 07, 2021 03:44 AM
BUSINESS

Developer Fantasia Holdings Defaults on $206 Million Note

Fantasia bought 20 parcels of land with an expected sales value of $48.3 billion yuan in 2020.
Fantasia bought 20 parcels of land with an expected sales value of $48.3 billion yuan in 2020.

Another Chinese developer failed to repay a $206 million note due Monday, adding the concerns on the nation’s property sector amid the crisis of industry leader China Evergrande Group.

Shenzhen-based developer Fantasia Holdings Group Co. Ltd. became the latest property company to face liquidity shortage as the housing market slows and regulators choke off credit to developers.

The missed payment is part of a $500 million note with a 7.375% coupon rate. Fantasia bought back part of the note between May and July, and the remaining $206 million of the principal balance was due Monday.

The company is facing temporary liquidity shortage, affected by multiple factors, such as repeated pandemic outbreaks, industrial policies and the macro-economic situation, Fantasia said in a statement to Caixin. It said it has set up an emergency response team to work on risk mitigation plans with the support of local governments, financial institutions and financial advisors.

Only two weeks ago, the company said it’s in good operating condition and has sufficient working capital and no liquidity issue.

All the three major global rating agencies have downgraded their ratings on the company, citing tighter access to funding and high debt maturities have increased the company’s refinancing risks.

Fantasia is not a big developer in terms of sales. In the first nine months of this year, the company had sales of 40.87 billion yuan ($6.34 billion), ranking the 64th in the industry.

Its subsidiary, Colour Life Services Group Co. Ltd., became the first Chinese mainland property service company listed in Hong Kong in 2014. From 2012 to 2016, Fantasia followed an “asset-light” strategy with a focus on property service, according to publicly available information.

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Since 2016, the company switched to an “asset-heavy” model, and in 2018 vowed to achieve 100 billion yuan of sales in 2020. That year, Fantasia bought 20 parcels of land with an expected sales value of $48.3 billion yuan, according to the company’s web site.

The expansion was accompanied by rising debt. As of the end of June, Fantasia’s total liabilities stood at 83.07 billion yuan, more than double 36.6 billion yuan at the end of 2016, according to its financial statements.

Over-reliance on offshore debt has been one of the reasons for credit downgrades by several rating agencies. As of the end of 2020, capital market debt accounted for 76% of Fantasia’s total debt, compared with 63% in 2019, according to a report by Fitch Ratings in July. U.S. dollar debt accounted for 62%, compared with 48% in 2019, Fitch said.

At the end of June, Fantasia’s U.S. dollar debt has decreased to 53% of its total debt, and the company aims to further reduce the proportion of offshore debt to 50% by the end of this year, chairman and chief executive Chen Xinyu said in August at its first-half results presentation.

Fantasia currently has 12 U.S. dollar bonds with a balance of $3.98 billion, including the one that was due Monday. Five bonds with a total of $1.56 billion yuan will mature within a year, and three bonds with a total of $762 million will mature in 2021. These bonds carry generally high interest rates. Seven bonds have rates over 10%, with the highest at 15%. Only three are below 8%.

The Chinese government has maintained strict rules that force indebted developers to reduce leverage, as well as measures aimed at preventing a bubble in home prices, such as caps on mortgage lending for banks as well as the “three red lines” imposed on developers, which determine the bottom lines for their liability-to-asset ratio, net gearing ratio and cash-to-short-term debt ratio. The result is that refinancing debt is becoming increasingly difficult to obtain for the sector.

In June, Fantasia issued a three-year note with a 14.5% coupon rate.

At a conference call with investors in June, the company disclosed plans to offload certain assets to repay offshore debts, including projects in Beijing, Hefei, Qingdao and Chengdu.

Fantasia said last week it’s selling its commercial property service unit to CG Services, the property-service unit of developer Country Garden. Fantasia has originally planned a spinoff and listing of the unit.

The company’s Hong Kong-listed shares have plunged 67% from its peak in August 2020. The trading of the stock has been suspended since September 29.

Contact reporter Denise Jia (huijuanjia@caixin.com)

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