[Closeup]Fantasia bond default-123 wooden people of real estate company? Lie flat and escape debt? | Position report

Evergrande’s crisis failed to accept the department, and another mainland real estate company Fantasia (1777.HK) defaulted on its bonds and was downgraded.Bloomberg Information last weekA review articleDescribe Fantasia like this: “Before this week, no one cared about Fantasia. It was a small developer ranked only 64 in China’s real estate industry. Its turnover was less than one-tenth of Evergrande, which was on the brink of collapse, and its debt was US$12.9 billion. A huge debt of more than 300 billion yuan is nothing but a big one.”

Fantasia is notable because of the identity of its founder, Zeng Baobao, the former Chinese Vice President Zeng Qinghong. In the age of playing Tencent, playing Alibaba, playing tutorial clubs, playing Didi Travel, playing Internet celebrities and playing celebrities…, Zeng Baobao dared to make a splash on mainland social platforms.

On October 4, Fantasia announced that it had outstanding US$206 million in notes. Color Life (1778), its subsidiary, also failed to repay the RMB 700 million equivalent of a 4-day short-term loan in Hong Kong dollars owed to Country Garden. On the same day, Zeng Baobao posted a poster for the movie “Dark Confrontation” on Weibo. Three days later (on the 7th), I will post again: “Professional matters are handed over to professionals, but the ass decides the decision-making of the head, and left to the one who sits on the ass with the most determined one. Focus.”

Immediately, speculation that the political factional struggles heated up, and the grievances of a group of private enterprises that were “reaped” were finally vomited.

Weibo screenshot
Weibo screenshot

Policies force people to lie down and avoid debts?

“The one with the most sure buttocks” is known to the whole world, but whether the Fantasia can survive the cold winter will leave many creditors, small shareholders, and a bunch of prospective owners of luxury homes feeling up and down.Bloomberg’s review articleIt is proposed that Fantasia is not incapable of repaying the debt, but choosing not to repay it.

Look at the FantasiaInterim Performance Report, As of the end of June, the company’s bank balances and cash had nearly RMB 27.2 billion. In early September, it announced the repurchase of US$6 million in bonds.Maintain a good liquidity position and may further purchase its senior notes depending on market conditions“. The Bloomberg article pointed out that Fantasia chose not to repay, opening the Pandora’s box of the financial crisis. Strategically, Fantasia’s strategy is high. Faced with a series of top-down policies, from managing property prices to managing debt scale, the real estate industry is almost a loss-making business, and the economic prospects are not optimistic. From a corporate perspective, there is really nothing. What are the incentives to fulfill bond obligations. It has always been a fancy year of relying heavily on overseas debt financing. As of the end of 2020, US dollar bonds accounted for about 62% of total debt. The long-term pain is not as good as the short-term pain. After the debt is cleared, it can also meet the three red lines set by the central government for financing the housing industry. Some mainland netizens also left a message on Zeng Baobao’s Weibo: “Thank you Fantasia, I have given all real estate companies a good way to evade debts and lie down.”

Coincidentally, Xinli Holdings (2103.HK), which started in Jiangxi, was downgraded by a rating agency in late September.U.S. dollar bondholders questioned“Prepare to lie down” and “obviously evade debts.”

The “123 Wooden People” of Real Estate Enterprises

However, “evasion of debts” is illegal in the Mainland, and it will also cause a great blow to the company’s ability to raise funds in the future. The Bloomberg review article pointed out that this debt evasion is forcing everyone, including investors and other real estate developers, to consider selling their assets and shutting down the refinancing of the entire industry. Everyone is in the same boat. Hundreds of real estate companies are “punching the water” together. Giant companies such as Evergrande do not necessarily have an advantage. The situation is just like the beginning of the recent hot Korean drama “Squid Game”. Everyone is actually just a “123 wooden man” who is almost at the end of the fight. .

In the Fantasia: Never lie flat, spend all your energy to solve problems

For the failure to repay the debt, Fantasia has its own set of explanations. The mainland media widely reported that Zeng Baobao sent a letter to the employees of the company on October 8 with the “Letter from Bao Ye”, which seemed to respond to the theory of “lying down and evading debts”: “The Fantasia Year will never lie down…The Fantasia Year is a weed After the cold winter, spring breeze blows and regenerates.” Regarding the company’s default, she said it was because the company suffered a “black swan” incident and was significantly downgraded by the rating agency Standard & Poor’s, which severely restricted the company’s domestic and overseas financing, and “liquidity was temporarily strained” (that is, sudden tightness). She pointed out that the management has set up a special team to solve the problem as soon as possible.

Private placement bonds exposed

The downgrade is more than Fantasia. It all started with Evergrande, and Xinli Holdings is one of the “relay” companies.Announced on September 30Failure to pay two domestic financing interests totaling RMB 38.742 million. Standard & Poor’s downgraded the company’s rating from CCC+ to CC. Moody’s and Standard & Popularity Fitch both lowered Fantasia’s ratings.Fitch refers toFantasia guaranteed that a US$100 million bond that was due on September 28 was a private placement bond, which did not seem to be reflected in the financial report. Fantasia also quoted Fantasia as saying that the company had repaid the money on the maturity date on time. Fitch believes that the exposure of such private placement bonds reflects that the company may not have sufficient liquidity as expected, and questioned the lack of transparency in the disclosure of financial information.

Evergrande has a similar situationRecently, it was reported that a US$260 million bond issued by Jumbo Fortune Enterprises, a joint venture of a subsidiary of Evergrande, was guaranteed by Evergrande. This type of operation seems to have become a common practice in China’s domestic real estate companies-using shell companies or joint ventures to issue privately placed dollar bonds to raise funds. Only a small group of investors know that it is not visible on the financial statements, nor is it visible to the regulators.

Fantasia announced on Friday (8th) 2021Unaudited operating data for the first 9 months, Total sales increased by 25%, but signed sales in SeptemberCompared to the same period last yearA reduction of 31.8%. Again, this is not unique to Fantasia. After the Evergrande crisis broke out,Other Chinese real estate developers are also facing buyers’ deterrence; As of the end of September, the unaudited operating data of Sony Holdings showed that the contracted sales amount in September was only RMB 2.2 billion, September 2020 is RMB 12 billion

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