China offshore bond default12/18/2023 ![]() ![]() ![]() ![]() In the first nine months of this year, the company had sales of 40.87 billion yuan ($6.34 billion), ranking 64th in the industry. After the default, all three major credit rating companies cut Fantasia’s rating to default or near-default status.Įven though Fantasia is not a big developer in terms of sales, its default caused panic in the market. S&P cut the long-term credit rating of Fantasia from B to CCC Sept. The company also said a change in the requirements by the local Shenzhen government on its banking account resulted in a delay in sales of its urban renovation project, affecting liquidity. Only two weeks before the default, the company said its operating condition were good, and it had sufficient working capital and no liquidity issues.įour days after the default, Fantasia’s founder and largest shareholder, Zeng Baobao, issued an internal letter to employees blaming a sudden significant downgrade by S&P Global Ratings for the company’s tight liquidity. 4 caught the market by surprise and caused the sell-off to intensify. The Fantasia default on $206 million of dollar bonds Oct. The yield on junk dollar bonds from the nation’s borrowers, mostly developers, climbed to a decade-high of about 20% this month.Īmid the rapid cooling of housing sales throughout the industry, the market is ignoring operating performance differences among issuers, and investors are dumping property companies’ bonds as they can’t distinguish whether companies are already insolvent or simply have liquidity difficulties, according to a fixed-income analyst at a large brokerage.Ī sharp drop in bond prices represents increasing market expectations that more real estate companies are at risk of default. Both companies had a B credit rating from Fitch Ratings.ĭollar bonds of at least a double-digit number of Chinese developers have plunged 20% to 30% recently. Shenzhen-based developer Kaisa Group Holdings Ltd.’s $550 million of dollar bonds due April 2022 declined to 52 cents on the dollar from 90 cents during the same period. 25. The company’s $200 million of dollar bonds due February 2022 plunged to less than 32 cents on the dollar recently from 93 cents at the end of September. Ltd., a Beijing-headquartered developer with $1.35 billion of dollar bonds outstanding, is asking holders for a three-month extension to pay off a note due Oct. and another missed payment by Sinic Holdings Group Co. That was followed with a surprise default by Fantasia Holdings Group Co. Still, officials including Vice Premier Liu He, central bank Governor Yi Gang and Zou Lan, head of the central bank’s financial market department, have made assurances that risks to the financial system stemming from Evergrande are controllable and are unlikely to spread.Įvergrande - the world’s most indebted developer with more than $300 billion in liabilities - missed five earlier offshore bond payments in late September and early October, and has a further $573 million coming due before the end of the year. When the government might reverse its restrictive policy will depend on the scope of the sell-off of developers’ dollar bonds and how much it affects the domestic bond market, said Lu Ting, chief China economist at Nomura Holdings Inc. Many analysts say they don’t expect a policy-easing soon. This is not the first time Chinese property developers’ offshore bonds faced a sell-off, but this time the headwinds are particularly strong as investors are not only worried about losses on the bonds but also have started to question Chinese developers’ overall credit. China’s tightening of credit to the real estate sector and the debt crisis at China Evergrande Group have sent yields on the country’s riskier notes to the highest level in a decade, making it hard for Chinese developers to borrow by selling offshore dollar bonds and threatening a wave of defaults. ![]()
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