After Dollar-Bond Default, Chinese Developer Fantasia Says It Will Fix Its Finances

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Fantasia’s yuan-denominated bond prices fell when they resume trading on the Shanghai Stock Exchange

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Shenzhen-headquartered Fantasia failed to repay $206 million in five-year dollar bonds that arrived that day on Monday, after recently telling some investors it intended to pay. There was no grace period for the bond, and global credit raters immediately downgraded the rating on Fantasia to the level of a default.

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According to Refinitiv data, Fantasia’s non-payment sent prices of that particular dollar bond up to 22 cents on the dollar, up from 99 cents at the end of last week. Many investors were panicked, and they sold off the junk bonds of other heavily indebted developers over the past few days. On Thursday, the yield on the ICE BofA index of high-yield dollar bonds from Chinese companies rose to 19.8%, reflecting excessive risk aversion among debt investors.

On Friday evening, Hong Kong-listed Fantasia said it had appointed a unit of US reorganization specialist Houlihan Loki Inc.

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As its financial advisor, to help it assess its liquidity and capital structure and to come up with solutions to mitigate its cash crunch. The goal, the company said, would be to “reach an optimal solution for all stakeholders as quickly as possible”.

Houlihan Locke is advising China Evergrande Group on similar issues. Fantasia said it has also appointed US law firm Sidley Austin as its legal advisor.

In a Shanghai stock-exchange filing posted earlier on Friday, Fantasia said it is evaluating the potential impact of a defaulting US dollar bond on its financial and operating position. The company said it has set up an emergency response team – which is also supported by financial institutions and consulting bodies – to formulate a plan to address its difficulties. The notice was also circulated by several domestic news websites this week.

The company said the inability to make payments was due to a “short-term liquidity problem” caused by a number of factors, including the COVID-19 pandemic, changes in industry policies and macroeconomic issues.

Fantasia said its business is still going on. The company said it will continue to communicate with investors and work towards repaying its debt.

Fantasia, known for building high-end residential projects and luxury apartments, was founded in 1996 by Zeng Jie, also known as Baby Zeng, niece of former Chinese Vice President Zeng Qinghong.

In recent days, users of China’s Twitter-like platform Weibo expressed concern about Fantasia’s unfinished residential apartment projects, given the company’s troubles. “Rest assured,” Ms. Zeng said in Thursday’s post.

Fantasia on Friday released figures for its operations for the first nine months of 2021, which showed a 25% increase in total sales, equivalent to $6.34 billion.

In September, however, the developer’s contract sales fell 32% from a year earlier to the equivalent of $558.7 million.

The decline was similar to what other Chinese property developers experienced recently, as Evergrande’s widely publicized financial troubles eroded demand from home buyers.

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