On the heels of China’s Evergrande’s debt problem, there are now increasing signs of problems in China’s real estate market after one developer has failed to pay their bond payment this Tuesday.

Ratings agencies have downgraded the Chinese developers Sinic Holdings and Fantasia Holdings over risks from their stressed cash flows.

Fantasia did not repay the principal on $206 million for a bond that matured this week, it said inside a filing to the Hong Kong exchange.

The firm has ceased trading of its company shares after September 9. Those shares have gone down by almost 60% ytd.

Evergrande Fears

The damage from Fantasia, however, would be smaller when compared to Evergrande.

Evergrande is the world’s top indebted real estate developer with debt of up to $300 billion, while Fantasia has overall debt of 82.9 billion yuan (which is $12.8 billion), according to its financial documents.

In a report put out before the company’s filing this past Monday night, Fitch Ratings stressed the existence of a private bond not revealed inside the company’s financial documents, and said Fantasia had made a late payment on the $100 million due for this particular bond.

“We believe the these bonds mean the company’s liquidity circumstance might be tighter than we previously thought. The late payment also increased doubts about the firm’s ability to repay its maturities in a timely manner,” Fitch said.

“Furthermore, this event casts doubts about the transparency of their financial disclosures,” it said.

Fitch Ratings this Monday said it downgraded Fantasia from “B” to “CCC-,” saying the firm’s cash flow “could be more restricted than expected.” According to its webpage, “CCC” is “substantial risk,” with a “true possibility” of default. “B” rating means material risk is seen, but a some safety remains.

China’s property sector has been under the spotlight after the debt issues of Evergrande came to light.

Evergrande — the second developer in China by volume of sales — has warned two times it might default, creating investor worries. It did not make interest payments on two United States dollar offshore bonds, and has been working to raise cash to pay investors and suppliers.

Author: Scott Dowdy

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