After Evergrande, the Chinese developer Fantasia cannot pay its debts either. That fuels real estate fears

Fantasia Holdings, a Shenzhen-based developer, has failed to repay $ 206 million in bonds due on Monday, the company said in a listing. It is now assessing “the potential impact on the Group’s financial position and liquidity,” it added.
Separately, the property management company of Country Garden, China’s second largest developer after Evergrande, said in a filing that Fantasia had failed to repay a corporate loan of approximately 700 million yuan ($ 109 million). Fantasia had told the company that it was likely to “fail” [its] External debt, “added Country Garden Services.

S&P and Moody’s have given Fantasia “default” credit ratings, stating that failure to pay the principal would likely cause the company to default on its remaining bonds as well.

“The downgrade follows Fantasia’s announcement that it has failed to pay its $ 205.7 million same-day bond, and reflects our expectation of poor recovery prospects for Fantasia bondholders following their default,” said Celine Yang, Senior Analyst at Moody’s.

Fantasia shares were suspended Tuesday, but Country Garden Services shares plunged 3.2% in Hong Kong. Country Garden Holdings lost 2.8%.

Failures could affect growth

The news fueled fears that the debt crisis is deepening in China’s overdone real estate sector, which accounted for 29% of Chinese banks’ outstanding yuan loans in the second quarter of 2021 Critical to China’s economy – real estate and related industries account for around 30% of GDP.

“The [Chinese] Real estate sector is of concern, “Macquarie Group’s Chinese economists Larry Hu and Xinyu Ji wrote in a research note on Tuesday.

Fantasia’s standard shows Evergrande’s problems “could dampen sentiment for homebuyers, developers and banks, which could put more developers into a liquidity crisis,” they said.

The outlook for that The Chinese real estate market is not encouraging. Macquarie estimates that home sales in China’s top 30 cities fell 31% year over year in September.

The Evergrande debt crisis has worried global investors in recent weeks and raised concerns about a possible ripple effect on the general Chinese economy and financial markets.

The company’s troubles have been brewing for more than a year after Beijing began curbing the real estate sector in August 2020 to curb excessive borrowing to prevent the market from overheating.

Earlier this year, the Chinese government made it clear that it would prioritize “common prosperity” in its policy goals and tame the skyrocketing house prices that it blames for worsening income inequality and threats to economic and social stability.

Evergrande’s liquidity crisis has worsened in recent months. The company warned investors of its cash flow crisis in September, saying it could default if it is unable to raise money quickly. In the past few weeks, she has missed at least two bond interest payments.

What's next for Evergrande: bailout, separation or default?

“While Evergrande’s problems are unlikely to spark a Lehman Moment, they will exacerbate the ongoing slowdown in the real estate sector,” Louis Kuijs, head of Asian economics at Oxford Economics, said in a report Tuesday.

“Given the large overall exposure of the residential real estate sector via ‘backward links’ to sectors like steel, its slowdown will weigh heavily on macroeconomic growth,” he said.

Still, Chinese politics seem to stand firm. Last week the People’s Bank of China and banking regulators said they would protect homebuyers. There was no mention of developers in their statement.

– Anna Cooban contributed to this article.

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