Second Chinese property developer Fantasia defaults amid Evergrande fiasco

As Evergrande faces total ruin, a second Chinese property developer is now drowning in debt, sparking concerns a contagion is underway.

As Evergrande lurches closer to collapse, a second debt-riddled Chinese property developer is now facing its own crisis, with experts fearing a contagion may now be upon us.

Evergrande, the world’s most indebted real estate company, is facing ruin as it struggles to repay its staggering $A408 billion debts.

The company’s potential collapse would be so huge there have been widespread concerns it could end up being China’s “Lehman moment” – a reference to concerns it could trigger a worldwide financial crisis and spark a “contagion” by affecting other companies and sectors.

Now, it appears that grim prediction might be coming to pass, with a second major Chinese real estate firm ailing.

China’s property industry is facing a disaster. Picture: Greg Baker/AFP

Fantasia

Founded in Shenzhen in 1996 by the niece of a former Chinese vice-president, Fantasia Holdings Group Company Limited is another leading Chinese property developer.

The company boasts five arms, including property development, property investment, property operation services, property agency services and hotel services, with other operations including tourism, entertainment and interior design services.

In other words, it’s not exactly a minor player.

But this week, Fantasia missed a payment on a $US206 million ($A282 million) bond that had matured the day before, triggering a default.

It came as property management firm Country Garden Services Holdings said that a unit of Fantasia had missed repayment on a 700 million yuan ($A108 million) loan, saying it was likely the company would default.

In a stock exchange filing, the company said it was is now assessing “the potential impact on the financial condition and cash position of the group”.

Just weeks earlier, the firm had insisted it had “no liquidity issue”.

Chinese real estate developer Fantasia Properties is now facing its own nightmare. Picture: Jade Gao/AFP

And in a third blow to China’s struggling real estate sector, another firm, Sinic Holdings, also defaulted on a debt interest repayment this week, with Fitch ratings downgrading Sinic as a result.

‘Liquidity crunch’

In the early days of the Evergrande crisis, there was widespread speculation it could cause a “contagion” and create problems for the broader global economy, with Tim Anderson, managing director at TJM Investments, saying the situation “raises the question if there are similar companies and similar situations investors haven’t looked at”, according to the New York Post.

Despite the drama playing out for weeks now, there is still no sign of the disaster being brought under control – and in fact, the Fantasia issue indicates the problem is already spreading.

In a research note earlier this week, China economists for Macquarie Group Larry Hu and Xinyu Ji described the current Chinese property sector as “worrisome”.

They added that Evergrande’s fiasco “could dampen the sentiment for homebuyers, developers and banks, causing more developers to run into a liquidity crunch”.

IG market analyst Kyle Rodda also said in a note today that “China’s financial markets and economy remains in a precarious position”.

And Craig Botham, chief China economist at Pantheon Macroeconomics Ltd, told Bloomberg Fantasia’s default “provides a clear sign that despite piecemeal bailouts of select Evergrande assets, property market stresses remain elevated”.

“The rot is unlikely to stop here.”

Where there’s smoke, there’s fire...

Fantasia Holdings Group—a Chinese luxury property developer—missed a $206 million bond payment and a private bond payment yesterday.

Fitch downgraded Fantasia to “restricted default” after the misses.

👀 on the Chinese property sector.

— Sahil Bloom (@SahilBloom) October 5, 2021

Basically, all eyes are on the Chinese property market, with the latest Fantasia development indicating Evergrande may have kicked off a troublesome domino effect.