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Chinese property developer Fantasia misses two debt payments

By Mensholong Lepcha

02:00, 5 October 2021

Looking up at a Chinese city's dense real estate properties
Office buildings in China – Photo: Shutterstock

Chinese property developer Fantasia Holdings missed debt payment deadlines due on Monday indicating the deteriorating health of China’s real estate sector.

Fantasia said it missed payment on an outstanding principal amount of $205.6m on a 2021 note due on 4 October.

Meanwhile, Country Garden Services in a separate press release said Fantasia is likely to default on a debt of CNY700m ($108.6m) owed by Fantasia’s unit, Colour Life Services, on 4 October.

Tight liquidity conditions

Chinese property sector is reeling under tight liquidity conditions following Beijing’s efforts to curb property prices in order to promote “common prosperity.”

Beijing has already begun tightening its credit tap by capping bank loans to developers and restricting debt accumulation as a part of its “Three Red Lines” initiative. Authorities are clamping down the use of IOUs or over-the-counter commercial bills, misuse of consumer loans in the property market and inflow of private equity funding into property-related projects.

Evergrande’s default crisis has made it even harder for property developers to secure liquidity through sales due to rock-bottom consumer confidence. The company had said there will be “tremendous pressure” on cash flow and liquidity due to an expected decline in contract sales in September.

Asset sales to fund debt

Evergrande has resorted to asset sales in order to access funding to pay off its dues. The company sold a part of its stake in Shengjing Bank for $1.5bn last week, while Global Times reported on Monday that Evergrande is looking to sell a stake in its property management unit for $5.14bn.

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Country Garden said on Monday that if Fantasia and its unit default on debts due, it will have the right to require Fantasia’s unit to transfer shares of Link Joy Holdings.

In late September, Country Garden through its unit had agreed to acquire Link Joy from Fantasia’s unit for a maximum consideration of CNY3.3bn.

Property sector downturn

“The property sector downturn may continue in coming quarters,” Nomura said in a note.

“We expect Beijing to maintain its property-related tightening measures and a rapid weakening of the property sector to deal a severe blow to headline GDP (gross domestic product) growth and government revenue. Furthermore, according to bond issuance data, property developer bond financing contracted further, albeit only slightly, in September,” Nomura added.

Fantasia called for a trading halt on Monday until further notice.

Read more: Trading of Evergrande shares halted on reported unit stake sale

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