Economic Observer Network reporter Cai Yuekun In 2021, the real estate industry will rise again after another. Following the exposure of the liquidity crisis by real estate companies such as Evergrande and Sony Holdings, during the National Day holiday, another top 100 real estate company Fantasia Holdings Group Co., Ltd. (hereinafter referred to as “Fantasia Holdings”) encountered the “dark moment of liquidity crisis” “.
On the evening of October 4, Fantasia Holdings announced on the Hong Kong Stock Exchange that the total principal amount was US$500 million. The remaining outstanding principal of the 7.375% senior notes due in 2021 was approximately US$206 million (approximately RMB 1.3 billion). According to the contract governing the 2021 bills, all the outstanding principals of the aforementioned bills are due on October 4, 2021. Fantasia Holdings did not pay on that day.
In addition, the company issued a suspension announcement stating that the company’s shares will be temporarily suspended from trading on the Hong Kong Stock Exchange at 9 a.m. on September 29, 2021, until further notice.
On the first day after the holiday, the default of Fantasia Holdings’ USD debt also triggered a chain reaction of the bonds of its holding company Fantasia Group (China) Co., Ltd. (hereinafter referred to as “Fantasia Group”).
On October 8, Fantasia Group’s bonds fell sharply. “18 Fantasia” fell more than 22% during the intraday cessation period to 74 yuan per sheet; “19 Fantasia 02” fell more than 28% during the intraday cessation period to 69.990 yuan. /open. After the temporary suspension and resumption of trading, the decline of “19 Fantasia 02” expanded, falling by more than 54%, triggering a second temporary suspension of trading during the intraday trading session.
Regarding the default of the US dollar debt, on October 8, Fantasia Group announced that the above-mentioned short-term liquidity problem occurred at the level of the company’s indirect controlling shareholder Fantasia Holdings. According to the company’s understanding, the board of directors and management of Fantasia Holdings are discussing relevant issues. The incident evaluated the impact of Fantasia Holdings’ financial and operating conditions, and with the support of local governments, financial institutions, financial consultants and other parties, an emergency team was established, and risk mitigation plans are being formulated to resolve phased difficulties as soon as possible.
In addition, reporters frequently called the publicly disclosed contact information of Fantasia Holdings. As of press time, it has not been connected.
However, it is worth noting that according to the semi-annual report of Fantasia Holdings, as of June 30, 2021, the company has kept bank balances and cash of 31.583 billion yuan. Compared with the end of 2020, an increase of 10.3%; the net debt ratio of 74.8% continues to be maintained at a good and stable level.
Why is there still more than 31.5 billion yuan in cash in the semi-annual report of Fantasia Holdings, but it can’t afford to pay 206 million US dollars in debt?
It is understood that Fantasia Holdings started in 1998 and was listed on the main board of the Hong Kong Stock Exchange in November 2009. Fantasia has contracted sales of 49.2 billion yuan in 2020, and has been rated as one of the “Top 100 Real Estate Enterprises in China” for 12 consecutive years. In addition, Fantasia also controls Color Life (1778.HK). In June 2014, Color Life was listed on the Hong Kong stock market, becoming the first listed stock for community service operations in Mainland China.
Suddenly “lay flat” after working hard
On October 4, Fantasia announced that all the outstanding principal of the 2021 notes will expire on October 4, 2021. The company did not pay on that day. In this regard, West China Securities said that the Fantasia default event exceeded market expectations, and the company still showed the image of confirmation until the holiday.
As early as May-June, Fantasia Holdings made an early redemption of USD 500 million due in October this year, and the cumulative redemption amount reached USD 288 million;
At the end of August, Chen Xinyu, CFO of Fantasia Holdings, stated that the issue of overseas US dollar debt was solved through four methods: secondary bond repurchase, tender offer, issuance of new debt, and obtaining liquid loan quota;
On the evening of September 28, Country Garden announced that it would acquire 100% equity in Neighbourhood, the core platform of Color Life, for approximately 3.3 billion yuan. Life Services has unconditionally transferred equity and is currently undergoing equity transfer procedures), West China Securities stated that this move was regarded by the market as a signal for confirmation of the sale of assets in Fantasia.
However, after many efforts by Fantasia Holdings, the US dollar debt defaulted on October 4th.
On October 8th, Fantasia Holdings stated to the public that the current liquidity is temporarily tight, but the operating order is normal. For bond defaults, the company will maintain close communication with investors, actively promote debt repayment guarantee measures, perform information disclosure obligations, and safeguard the legitimate rights and interests of investors.
Prior to this, on September 29, China Chengxin International Ratings Co., Ltd. issued the “Announcement of China Chengxin International on Adjusting the Rating Outlook of Fantasia Group (China) Co., Ltd. to Negative”. The reason for the adjustment is: Fantasia Holdings faces greater bond maturity pressure, and the increasing difficulty of refinancing credit bonds has a certain negative impact on the continuity of Fantasia Group and Fantasia Holdings’ debts. The concentration of credit bond maturity has a negative impact on Fantasia Holdings. The Group’s and Fantasia Holdings’ asset liquidity and fund raising capabilities have put forward greater tests.
Up to now, according to Wind information data query, there are currently 5 renewed bonds in the Fantasia Group, with a balance of nearly 6.45 billion yuan.
Three major international rating agencies take turns to downgrade ratings
After Fantasia Holdings materially defaulted on US$206 million in debt, the three major international rating agencies took turns downgrading the company’s rating.
Moody’s reported that Fantasia Holdings (Fantasia Holdings Group Co., Limited) downgraded its corporate family rating from “B3” to “Ca”, with a “negative” outlook. In addition, Moody’s downgraded its senior unsecured rating from “Caa1” to “C”. Before the downgrade, the above ratings were all listed on the downgrade watch list.
S&P reported that due to failure to repay the bond principal, S&P downgraded the long-term issuer credit rating of Fantasia Holdings Group Co., Limited from “CCC” to “SD” (selective default), and The company’s long-term issuance rating of senior unsecured notes due on October 4, 2021 was downgraded from “CCC” to “D”.
In addition, Standard & Poor’s downgraded the issuance rating of the company’s other senior unsecured notes from “CCC” to “CC” to reflect the high vulnerability of its ability to pay.
Fitch reported that because Fantasia Holdings Group Co. (Limited) failed to repay the US$206 million senior notes due on October 4, 2021, it assigned its long-term foreign currency issuer default rating (IDR) to “CCC-” is downgraded to “RD” (restrictive breach of contract).
Regarding the Fantasia Holdings half-year report that the company has sufficient cash on hand, S&P commented that although the Fantasia Holdings report said the company has sufficient cash on hand, its failure to repay the bond principal highlighted its liquidity shortage. As of June 30, 2021, Fantasia has reported an unrestricted cash balance of RMB 27.1 billion. According to the company’s management, the cash balance includes about 10 billion yuan in cash at the holding company level, of which about 1.5 billion yuan is located overseas. However, as the financing environment deteriorates, cash may be used to repay other debts or become unusable. At the same time, the company’s asset disposal process was slower than we expected, and it failed to bring liquidity resources in time.
Standard & Poor’s said that the principal default may trigger a cross default of Fantasia Holdings’ undue bonds and may accelerate the early payment of other debts of the company. Due to the weakening of Fantasia’s credit quality, creditors may require the company to repay the loan in advance.
Under the impact of the default of Fantasia Holdings’ bonds, some domestic real estate bonds fell sharply.
On October 8, the domestic debt of some real estate companies fell sharply. Sunshine City’s “20 Yangcheng 02”, which expires in 2025, fell by 17.6% to 60 yuan, and China’s Aoyuan’s “20 Aoyuan 01”, which expires in 2025, fell 9.5% to 70.49 yuan, both of which were the lowest since listing.
As of the close, Fantasia Group’s “19 Fantasia 02” fell 54.16% to 44.830 yuan per sheet.
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