Beijing, China: A pedestrian crosses the road in front residential buildings. Bloomberg
After Evergrande's debt crisis, signs of stress are growing in China's property markets. One developer failed to pay a bond payment Tuesday. Rating agencies have downgraded Chinese developers Fantasia Holdings, Sinic Holdings due to the risks associated with their tight cash flow. Fantasia said it did not repay the bond it had issued on Monday. It stated that trading in its shares has been stopped since Sept. 9, and will continue until further notice. These shares have fallen nearly 60% in the past year.
Evergrande contagion fears
Fantasia's fallout would however be much smaller than Evergrande. According to the company's first-half financial statements, Evergrande has liabilities of $300 billion and Fantasia total liabilities is 82.9 billion Yuan ($12.8 million).
These bonds could indicate that the company's liquidity position may be more tight than we had previously anticipated. Fitch Ratings
Fitch Ratings said Monday that it had downgraded Fantasia from "B" to "CCC-", stating that the firm's cash flow "could have been tighter than we expected". According to Fitch Ratings' website, "CCC” means "substantial credit risks" with the "real possibility of default. A rating of "B" means that there is a material default risk, with a small margin of safety. Fitch released a report before Monday's company filing. It highlighted the existence a private bond, which was not disclosed in financial reports. Fitch also stated that Fantasia had paid $100 million late on this bond.
"We believe that the existence of these bonds suggests that the company's liquidity position could be more tight than we had anticipated. Fitch also expressed doubts over the company's ability repay its maturities on time due to the late payment. It added that the incident cast doubt on the transparency of financial disclosures by the company. Evergrande's debt troubles have brought attention to China's property industry. Evergrande, China's second largest developer by sales, has twice warned it could default, triggering investor concerns. It has missed interest payments on two U.S. dollar offshore bonds and is now scrambling for cash to pay investors and suppliers. Others have also been scrambling to raise cash, signaling more distress in the sector. Guangzhou R&F, another real estate developer, is also on investors' radar. According to Reuters, it said that it had raised as high as $2.5 billion last month by borrowing money from major shareholders and selling a subsidiary. Fitch changed its outlook last month from stable to negative, citing limited funding and ongoing refinancing requirements.
Industry watchers are concerned about the possible spread of the Evergrande crisis, which has impacted China's growth. Analyst estimates suggest that China's real estate sector accounts for 15% of the Asian giants gross domestic product. Chinese developers also dominate many Asian high-yield bonds funds. According to Refinitiv Eikon data, the ICE Bofa High Yield Asia Emerging Markets Corporate Plus index's returns have fallen to -9.89% for the year.
Sinic is likely to default
S&P Global Ratings downgraded Sinic Holdings Tuesday morning from "CCC+ to "CC." According to the agency's website "CCC" indicates that the firm is currently at risk and dependent upon favorable business, economic, and financial conditions in order to fulfill financial commitments. The firm is considered to be extremely vulnerable if it is deemed "CC". Although default has yet to occur, it is almost certain. S&P stated that the rating was lowered because Sinic is experiencing severe liquidity problems and its debt-servicing capacity has almost been exhausted.
