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China debt crunch

Chinese property developer Fantasia fails to repay bond

S&P declares company in default amid worries about Evergrande

Fantasia Chairman Pan Jun, center, in 2012: Shares of the Shenzhen-based developer have been suspended from trade since Sept. 29.   © AP

HONG KONG -- Chinese property developer Fantasia Holdings Group has failed to repay a maturing bond and a loan in the latest sign of distress among the country's real estate companies.

Like bigger rival China Evergrande Group, Fantasia is based in Shenzhen and has been grappling with excessive debt amid a credit crunch.

Fantasia said in a filing in Hong Kong on Monday evening that it had failed to redeem a $205.7 million bond due that day. It also failed to repay a short-term loan of 700 million yuan ($108.56 million) due then to Country Garden Services Holding, which has a pending deal to buy much of Fantasia's property management business.

Fantasia has a 30-day grace period to repay the five-year bond before it is officially in default, according to its bond offering prospectus. Its shares have been suspended since Sept. 29 pending an announcement of another asset sale. They have fallen 58.5% so far this year.

"The board and the management of the company will assess the potential impact on the financial condition and cash position of the group under the circumstances," Fantasia said in its filing.

S&P Global Ratings on Tuesday evening cut its rating on the company to "SD" or selective default.

"The nonrepayment of principal will likely trigger cross defaults in Fantasia's outstanding bonds," it said. "It could also accelerate repayments on the company's other debt. Creditors may seek early repayment owing to Fantasia's deteriorating credit profile."

Just before S&P's move, Moody's Investor Service slashed its rating on Fantasia by four notches from "B3" to "Ca," one rung above default. Fitch Ratings had cut its assessment of the company's creditworthiness on Monday from "B" to "CCC-."

The Hang Seng Mainland Properties Index on Tuesday fell 3.5%, with China New Town down 12.6%, Sunac China slipping 10.1% and Guangzhou R&F Properties falling 9.5%. Country Garden Services shares also slipped 3.2% in Hong Kong.

Beijing's moves over the past year to curb excess leverage in the property sector to reduce risk to the financial system have kept stretched developers in the world's second-largest economy from refinancing debt.

S&P last month estimated that developers it rates are due to redeem 480 billion yuan in domestic and offshore bonds over the next year, equal to almost a fourth of their free cash reserves.

While the potential default of Fantasia, which had $12.9 billion in total liabilities as of June 30, would not have major repercussions, investors and analysts are on edge as Evergrande teeters. The bigger developer has more than $300 billion in liabilities and has missed payments to banks, suppliers, bondholders and other investors.

Between now and the end of 2022, Fantasia is due to repay $1.9 billion in dollar bonds and 6.4 billion yuan in domestic bonds, according to Fitch.

Fitch and S&P on Tuesday also cut their ratings on developer Sinic Holdings, which failed to pay interest on two domestic debt obligations last month, citing liquidity constraints.

The missed payments cast doubt over Sinic's ability to redeem a $246 million dollar bond maturing on Oct. 18, the ratings agencies said in separate statements. S&P cut its score from "CCC+" to "CC" while Fitch trimmed its rating from "CCC-" to "C," the last rung before default.

Fantasia previously said it had $200 million in cash offshore as of Aug. 31 to meet upcoming payments but subsequently told Fitch it had used half the funds to repay a previously undisclosed private bond on Sept. 28.

"The existence of undisclosed liabilities could significantly affect our leverage, coverage and liquidity calculations and forecasts," Fitch said in its note Monday, adding that Fantasia's plan to raise cash from asset sales is subject to "execution risk." It noted that the sale of assets in the cities of Qingdao and Beijing have gone slower than expected due to weak investor demand.

While Country Garden Services last week agreed to pay 3.3 billion yuan for Fantasia's core property management assets, Fantasia's failure to repay the loan from County Garden dampens the prospects of any cash changing hands soon.

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