The debt problems plaguing the real estate market in China deepened on Tuesday after a developer blocked its bonds, while the world’s heaviest debt group Evergrande extended a suspension of its shares to a second day without explanation.
Fantasia Holdings, a mid-sized developer that assured investors just weeks ago that they had “no liquidity issue”, said in a stock exchange that it “did not make the payment” on Monday of a $ 206 million bond that those day expired, causing a formal default.
The default contributes to the fear that a crisis at Evergrande will spread to more of China’s real estate developers, who make up a large part of the high-yield Asian market. The real estate sector is under pressure from Beijing to reduce leverage after decades of debt-driven expansion that have helped the country’s rapid economic growth.
Evergrande missed an interest payment on a foreign mortgage on September 23, resulting in a 30-day deferral period prior to a formal default, and has yet to make an announcement.
Fantasia also suspended trading in its shares before markets opened in Hong Kong on Tuesday, joining Evergrande, which halted trading in its holding company and its real estate unit on Monday morning.
Evergrande’s services unit said in an exchange application on Monday that trading would be suspended ahead of a ‘possible general offer’ for its shares. Hopson Development, another Hong Kong-listed developer, also froze its shares on Monday, prompting speculation from Chinese media that it could take a majority stake in Evergrande’s real estate services company, which was listed last year. .
Evergrande did not provide details on Tuesday morning about the possible deal, which led to an indefinite trade halt when the company was in a hurry to meet obligations over total liabilities of more than $ 300 billion.
“There is nothing investors can do. . . the worst is yet to come, ”said Dickie Wong, head of research at Kingston Securities in Hong Kong. Wong said there is no rule preventing companies listed in the city from suspending shares for months solely on the basis of a concise statement without any actual details.
In addition to the Fantasia standard and the missed payment of Evergrande, China Fortune Land Development, which specializes in industrial parks in Hebei Province, default on a foreign bond in February.
Fantasia was downgraded to CCC by S&P last week, noting that ‘increased repayment risk on repayment’ is related to the bond owed on Monday.
The rating agency Fitch said Fantasia had $ 1.9 billion in foreign mortgage payments due by the end of next year, and as much as $ 6.4 billion ($ 1 billion) in land payments should be paid in the same period.
The company entered the market at the end of August to buy up $ 6.5 million of the notes that expired on Monday.
But its bonds have recently tumbled due to repayment concerns, with a $ 250 million dollar bond falling to $ 0.38 on the dollar in December this week.
Shares in Huarong, China’s largest bad debt manager, were suspended for months earlier this year after the company delayed its financial reports before finally revealing a record loss in August. The delays have sparked a debate over the extent to which Beijing will intervene to help businesses in need.
‘Basically they [Evergrande] need not make any detailed announcement. The announcement could be as simple as: ‘We’ll enter into a possible agreement,’ period, ‘”Wong said. “There is basically no time frame.”
Evergrande, whose shares fell more than 80 percent this year before the trade halt, spent months trying to raise cash from asset sales to pay off its total debt of more than $ 300 billion.
The Hang Seng Property Index, which listed major developers in Hong Kong, fell to 2.2% on Monday but was flat on Tuesday.