Chinese real estate developer Fantasia misses two debt payments
Chinese real estate developer Fantasia Holdings missed the debt payment deadlines due Monday, indicating the deteriorating health of the Chinese real estate sector.
Fancy said it defaulted on an outstanding principal amount of $ 205.6 million on a 2021 note due on October 4.
Meanwhile, Country Garden Services in a separate press release said Fantasia was likely to default on a CNY 700 million ($ 108.6 million) debt owed by Fantasia’s unit, Color Life Services, on October 4.
Tight liquidity conditions
The Chinese real estate sector is plagued by tight liquidity conditions following Beijing’s efforts to reduce real estate prices in order to promote “common prosperity.”
Beijing has already started to tighten its credit by capping developer bank lending and limiting debt build-up as part of its “Three red lines” initiative. Authorities crack down on the use of IOUs or over-the-counter (OTC) commercial paper, the misuse of consumer loans in the real estate market and the influx of private equity funds into related projects to real estate.
Evergrande’s default crisis has made it even harder for real estate developers to get cash from sales due to low consumer confidence. The company had said there will be “enormous pressure” on cash flow and liquidity due to an expected drop in contract sales in September.
Asset sales to finance debt
Evergrande has resorted to the sale of assets in order to access financing to pay its contributions. The company sold part of its stake in Shengjing Bank for $ 1.5 billion last week, while Global Times reported on Monday that Evergrande plans to sell a stake in its property management unit for $ 5.14 billion. dollars.
Country Garden Services said on Monday that if Fantasia and her unit defaulted on debts owed, it would have the right to require the Fantasia unit to transfer shares of Link Joy Holdings.
Earlier at the end of SeptemberCountry Garden Services, through its unit, had agreed to acquire Link Joy from the Fantasia unit for up to CNY 3.3 billion.
The slowdown in the real estate sector
“The slowdown in the real estate sector could continue over the next few quarters,” Nomura said in a note.
“We expect Beijing to maintain its real estate-related tightening measures and a rapid weakening of the real estate sector to deal a severe blow to overall GDP growth and government revenues. In addition, according to bond issuance data, bond financing for real estate developers contracted further, albeit slightly, in September, ”Nomura added.
Fantasia called for trading to stop on Monday until further notice.
Read more: Trading in Evergrande shares interrupted following a sale of unit shares
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