Chinese Developers Showing Sign of Weakness Amidst Evergrande Crisis

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China's real estate sector has been under enormous financial stress.
China's real estate sector has been under enormous financial stress. (Image: MichaelGaida via Pixabay)

For the past few months, Chinese real estate firm Evergrande has been one of the focus points of the international investment community. The company has taken more than $300 billion in debts and is now unable to service many of the repayments.

Experts have been warning that this might not be a problem limited to Evergrande alone and that other Chinese real estate companies may also be in financial trouble. Such predictions seem to be coming true as multiple developers from communist China are showing signs of financial weakness, even missing out on their debt payments.

In its filing at the Hong Kong exchange, Fantasia Holdings admitted that it failed to pay $206 million in bonds that matured on Oct. 4. The company has 30 days to repay the bonds before they are officially considered a default. In addition, Fantasia has also failed to pay $108.56 million to a firm that is attempting to buy off its property management business. 

The company’s liabilities total $12.8 billion according to its financial statement for the first half of 2021. Fantasia’s shares have fallen by almost 60 percent this year and the company had to halt trading on Sept. 9.

S&P Global Ratings has cut its rating for Fantasia, lowering it to “Selective Default.” The agency said that the non-repayment of principal will potentially trigger defaults in the company’s outstanding bonds. 

Ratings agency Fitch pointed out that Fantasia had not disclosed a private bond in its financial report. $100 million due on the bond was paid late by the company. 

“We believe the existence of these bonds means that the company’s liquidity situation could be tighter than we previously expected,” Fitch said.

Sinic Holdings’ ratings were downgraded by Fitch after the real estate company failed to pay the interest due on its debts. According to financial reports for the first half of this year, Sinic has accumulated $14.2 billion in debt. Since Sept. 20, trading of the company’s shares has been halted. 

Sinic has a $246 million bond repayment due on Oct. 18, which S&P ratings believes will end up in default. The agency has also downgraded Sinic to a CC rating, meaning that the company is in a highly vulnerable position. 

“We lowered the rating because we believe Sinic has run into severe liquidity problem and its debt-servicing ability has almost been depleted,” S&P said.

Investors are also keeping a close eye on Xinyuan Real Estate Co that has a $229 million bond repayment due on Oct. 15. Last month, Fitch downgraded Xinyuan’s ratings due to “heightened refinancing risk” on the Oct. 15 bond.

In an interview with Reuters, an anonymous analyst from London stated that the cost of funding for Chinese real estate firms “has increased massively for all these companies and it is actually a contagion risk.”

“Since the Evergrande crisis, investors have become more worried and focused about Chinese developer’s repayment ability,” Thomas Kwok, head of equity business at Hong Kong brokerage CHIEF Securities, told the media outlet.

Kwok warned that many real estate developers have not been able to issue fresh debt to refinance, which has created liquidity issues for these companies. 

“This will be a vicious cycle for the developers that are not strong enough, because there is not enough liquidity in the market for everyone,” Kwok said. Real estate accounts for 15 percent of China’s GDP.

  • Jonathan loves talking politics, economics and philosophy. He carries unique perspectives on everything making him a rather odd mix of liberal-conservative with a streak of independent Austrian thought.