| Chinese flags wave near the Evergrande Group headquarters building in Shenzhen, Guangdong province, China, Oct. 1. Fantasia Holdings Group, the Shenzhen-based property developer founded by the niece of a former Chinese vice-president, has failed to repay $205 million of debt due on Monday. EPA-Yonhap |
The default will add to fears about the financial health of the Chinese property sector, as the liquidity crisis at China Evergrande Group ― the world's most indebted property developer ― continues to unfold.
"Under the indenture governing the 2021 notes, all outstanding principal amount of the 2021 notes shall be due on 4 October 2021," Fantasia said in a filing to Hong Kong's stock exchange late on Monday.
"The company did not make the payment on that day. 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 issued the $500 million senior note due this month in September 2016. It carried a 7.37 per cent interest rate. On completion of a tender offer a few months ago to buy back some of the notes, the remaining unpaid amount came to $205.65 million, Fantasia said.
The bond prospectus specifies an event of default when the principal is not repaid on time when the bond matures, while the interest payment carries a 30-day grace period.
The missed payment came just two weeks after the company said it had no liquidity issues and had "already prepared the funds" to redeem its bonds due this month. It had obtained HK$1.1 billion ($142 million) of financing from Chiyu Bank in June, it said at the time.
Earlier on Monday, Fitch Ratings downgraded Fantasia's long-term foreign currency issuer rating to "CCC-" from "B", citing the risk of default on its upcoming U.S. dollar bonds, tighter than expected offshore liquidity and lack of transparency.
The agency was surprised by Fantasia's recent confirmation that it had used $102 million of the $200 million offshore cash balance it had at the end of August to repay a previously undisclosed private bond on Sept. 28.
"Fantasia said it intends to transfer funds needed to repay the [$205 million] due on Oct. 4 2021 to the trustee accounts, but Fitch has not been able to ascertain if it has done so," the agency said on Monday.
The developer has $1.9 billion of offshore bonds and 6.4 billion yuan of onshore bonds that are either maturing this year or next year, or subject to risks that bondholders would exercise their right to demand early repayment, Fitch noted.
It said it would further downgrade its rating upon confirmation that it had failed to repay the U.S. dollar bond maturing on Monday.
Since China stepped up its scrutiny of developers with its "three red lines" leverage targets in August last year, the taps have dried up for some industry delinquents including China Evergrande.
Other companies that failed the test included Guangzhou R&F Properties and Sichuan Langang, according to a report published by Beike Research Institute in August.
Evergrande had 1.97 trillion yuan ($305 billion) in total liabilities as of June 30, and concerns have been mounting this year about its ability to service its massive debt load, after it failed to repay contractors and suppliers on time.
It remained unclear whether Evergrande made a coupon payment of $83.5 million on offshore debt due on Sept. 23, or a separate payment of $45.2 million last week. The company has a 30-day grace period before it can be declared in default on the bonds.
Fantasia was founded in 1996 by Zeng Jie, the niece of former vice-president Zeng Qinghong.
Trading in the company's shares was halted last Wednesday pending an announcement in relation to a proposed "very substantial" disposal.
They last traded at 56 HK cents, having fallen 58.5 percent from the start of the year.