Chinese property developer firms Fantasia and Sinic Holdings have joined Evergrande on the list of companies experiencing extreme financial straits, after both firms were downgraded this week by Fitch Ratings after defaulting on payments, reports Pete Carvill for FSA‘s sister publication Expert Investor.
On Monday, Fitch downgraded Sinic Holdings’s long-term issuer default rating from ‘C’ to ‘CCC’. This followed it also downgrading Sinic’s senior unsecured rating to ‘C’ from ‘CCC-‘. The following day, the company downgraded Fantasia from ‘CCC-‘ to ‘Restricted Default’ after it was unable to repay $206m senior notes that were due on Monday.
Commenting on Sinic Holdings, Fitch said in a statement, “The downgrade reflects our view that a default-like process has begun, following Sinic’s announcement that certain subsidiaries have missed interest payments on onshore financing arrangements, which was followed by enforcement action taken by one of its offshore creditors.”
In reference to Fantasia, Fitch said: “Fantasia’s failure to make payment on the US dollar bonds due on 4 October 2021, is consistent with Fitch’s definition of an ‘RD’ rating, as the company has experienced an uncured payment default on a material financial obligation but has not yet entered into bankruptcy filings, administration, receivership, liquidation, or other formal winding-up procedures, and has not otherwise ceased operating.”
Problem seems to be spreading
The travails of Sinic Holdings and Fantasia come against the backdrop of Evergrande’s continuing problems. On Monday, it was reported that the company had requested a halt in its trading of its shares in Hong Kong pending the announcement of a major transation, rumoured to be a majority stake in its property management arm. If so, that deal could raise more than $5bn.
Despite Evergrande missing two interest payments recently, the company is still battling for survival. However, its predicament is still prompting fears of a contagion that will shake the world economy. Writing for news.com.au, an Australian website, Alexis Carey called the idea of contagion a ‘grim prediction [that] might be coming to pass’.
Carey added: “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.”