Chinese Luxury Developer Fantasia Fails to Repay $206 Million Dollar Bond
Published 5 October 2021, 11:12:17.133 GMT
(Dow Jones) -- SINGAPORE -- Fantasia Holdings Group Co., a developer of luxury apartments in China, said it didn't make a $206 million U.S. dollar bond payment that was due Oct. 4, adding to the malaise surrounding the country's highly indebted property companies.
The company, which like China Evergrande Group is based in Shenzhen, said late Monday that it didn't pay the outstanding principal on a 7.375% bond which it issued in 2016. Fantasia originally sold $500 million of this debt and earlier this year bought back some of the securities.
The notice of the missed payment took some market participants by surprise. Just days earlier, a Fantasia representative told investors that it would make the payment, according to a note from Chuanyi Zhou, a credit analyst at Lucror Analytics. In late September, Fantasia said a company owned by its founder bought a small portion of the same bond issue, after the developer noted that its "operating performance is good with sufficient working capital and no liquidity issue."
Hours before Fantasia's latest regulatory filing, Fitch Ratings cut its rating on Fantasia by four notches to CCC-, reflecting an extremely high risk of default. The global rating firm said the developer reportedly recently missed another payment on a private bond – which Fitch was previously unaware of – and said the incident "casts doubt on the transparency of the company's financial disclosures."
On Tuesday, Fitch revised its Fantasia rating to "restricted default" following the company's failure to repay its dollar bond, noting that there is no grace period for repayment.
Prices of junk bonds from other Chinese real-estate developers tumbled on Tuesday, reflecting investor worries about whether those companies would be able to repay their dollar debt.
Kaisa Group Holdings Ltd.'s 10.5% bond due September 2022 dropped more than 7 points to 76 cents on the dollar, according to Tradeweb, while Central China Real Estate Ltd.'s 6.875% bond due in November this year fell nearly 5 points to 68 cents on the dollar. Dollar bonds of Sunac China Holdings Ltd. Were also sharply lower.
Like its larger peer Evergrande, Fantasia is listed in Hong Kong and was an active issuer of high-yield dollar bonds, which have sold off sharply in recent weeks. One of its bonds that comes due in 2024 was recently quoted at 24 cents on the dollar, according to Tradeweb. Fantasia, in its recent first-half report, listed around $4.3 billion in outstanding dollar bonds as of June, including some issued earlier this year with double-digit percentage coupons.
Evergrande, China's most indebted developer and the country's largest issuer of junk bonds, missed interest payments on its dollar debt over the last two weeks, but hasn't made any public disclosures about the matter. On Monday, a profitable property-management unit of the ailing developer said it could be the subject of a takeover bid, which would bring much-needed cash to Evergrande.
Fantasia was founded in 1996 by Zeng Jie, also known as Baby Zeng, a niece of former Chinese Vice President Zeng Qinghong. The company is known for building high-end residential projects and luxury apartments. Fantasia has dozens of ongoing real-estate projects in major metropolitan areas across China, in cities including Beijing, Wuhan, Tianjin and Ningbo.
On Monday night, shortly after Fantasia's regulatory filing about its missed bond payment was released on the website of Hong Kong's stock exchange, a poster of the British film "Darkest Hour" appeared on Ms. Zeng's Weibo account in China, without any accompanying commentary.
Fantasia went public in 2009 after raising $400 million. The company recently had a market capitalization of about $415 million. Its shares have been halted from trading since Sept. 29 pending a company announcement. Ms. Zeng is its largest shareholder and an executive director, according to its annual report.
When compared with Evergrande, Fantasia is significantly smaller in size. Its sales in the first nine months of 2021 ranked 73rd among its domestic peers, while Evergrande was in third place, according to a market report by research firm CricChina.
"In our view, this is an issue of willingness to pay instead of ability to pay," Ms. Zhou of Lucror said of Fantasia's missed dollar bond payment. She added that the company previously claimed to have enough cash to meet its October bond maturity and has met some of its other obligations.
Fantasia didn't immediately respond to a request for comment on Tuesday. In its Monday regulatory filing, the company said its board and management will assess the potential impact of the nonpayment on its financial condition and cash position and provide updates if there are further developments. It also said its shares would remain suspended from trading.
Fantasia reported the equivalent of $1.7 billion in revenue for the first six months of 2021, up 18.5% from a year earlier, and net profit of $23.7 million. The company said it achieved "excellent sales performance" during the period and reported contracted property sales of $4.36 billion, up 61% from a year earlier.
On Tuesday, multiple state-owned Chinese media outlets said an "emergency response committee" has been set up by the company, with support from local governments, financial institutions and advisory bodies to resolve its issues.
An article that was republished by several domestic news websites said Fantasia's liquidity was strained and its "intermittent crisis" was inevitable. It added that the company has made important contributions to societal development and should eventually overcome its troubles.
By Anniek Bao, Serena Ng and Frances Yoon
--Alexander Saeedy in New York contributed to this article.