After Evergrande, a new Chinese real estate developer defaulted on Monday, October 4, on a maturity of $ 206 million (177 million euros) in debt. Fantasia, a company specializing in luxury real estate, had its listing suspended on the Hong Kong Stock Exchange a week earlier, on October 29. Also on Monday, Evergrande, the most indebted promoter in the world, decided to suspend its listing pending an announcement of “Major transaction”.
In the process, the titles of Chinese promoters seen as the most fragile plummeted, reflecting significant concern about the risk of contagion in a largely over-indebted sector. Between its unpaid invoices to its suppliers, apartments to be delivered to more than 1 million customers and its issues on the debt market, Evergrande must repay 260 billion euros… or 2% of Chinese GDP.
Fantasia’s default surprised the market: two weeks earlier, the company had denied press articles that spoke of its difficulties. But, on Monday, the company, founded in 1996 by Zeng Jie, the niece of former vice-president (2003-2008) Zeng Qinghong, admitted that it was unable to repay its due date.
More than ten promoters in difficulty
The same day, the management company Country Garden Services Holdings indicated that a subsidiary of Fantasia had not repaid a loan of 700 million yuan (93 million euros), foreseeing a possible default of the real estate group. In the process, the Fitch agency lowered the credit rating of this promoter from B to CCC−, a level reserved for companies in default of payments.
“I think we will see other defaults, a consequence of regulatory tightening”, explains Dan Wang, of Hang Seng bank.
Fantasia is a much smaller company than Evergrande: the company is 73e China in terms of sales, while Evergrande is in third place, but its situation reinforces concerns about possible contagion in a sector known for its endemic debt. Another promoter, Sinic, also saw his rating downgraded on Tuesday by the agency S&P Global Ratings, which believes that its “Debt service capacity is almost exhausted”.
The company had to suspend its listing in Hong Kong after its price fell 87% in early September. More than a dozen Chinese promoters have been put in great difficulty by the “Three red lines” accountants imposed in August 2020 by the Chinese regulator to clean up the sector. “I think we will see other defects, which are the consequence of regulatory tightening for the real estate sector”, explains Dan Wang, chief economist for the Hong Kong bank Hang Seng.
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