Fantasia seeks ‘breathing room’ to survive crisis

Published 17 January 2023, 03:00:55.14 GMT

Debt-laden Chinese property developer Fantasia Holdings has proposed a restructuring that would give it up to 6½ years of breathing room, including a debt-to-equity swap and the conversion of debt to longer-term, lower-coupon bonds.

The offer includes swapping US$1.3 billion out of the company’s total of US$4.018 billion in offshore bonds into Fantasia shares, according to a filing with the Hong Kong stock exchange late on Sunday.

Meanwhile, eight existing US dollar-denominated bonds maturing between 2021 and 2024 would be placed in eight new tranches maturing between 2024 and 2029.

The new coupon rates would range from 5 to 8 per cent, down from the current 6.95 to 15 per cent.

The Shenzhen-based company said it had received approval from creditors holding 24.5 per cent of the aggregate principal amount of the bonds.

“The debt-to-equity swap is good to help improve the company’s capital structure, which can ultimately pave the way for these distressed developers to survive the crisis,” said Lawrence Lu, S&P Global Ratings’ senior director.

However, the value to be received from the swap translates to about a 53 per cent equity stake in the company and is well below the value of the bonds exchanged, according to Lucror Analytics.

“The rest of the restructuring is in line with those completed by peers,” said Leonard Law, senior credit analyst at Lucror, who believes the plan will “most likely” get the green light from the developer’s creditors.

Founded in 1996 by Zeng Jie, the niece of former vice-president Zeng Qinghong, Fantasia surprised the market in October 2021 when it said it would not be able to repay US$205.7 million in remaining principal it owed on a US$500 million senior note, only days after it told investors and creditors that it had made a funding arrangement to repay the bond on maturity.

The company’s debt was swiftly downgraded, and it later faced a winding-up petition but got a reprieve on a US$108 million bond repayment in July 2022.

Fantasia’s 11.875 per cent US dollar note maturing on June 1 climbed nearly 36 per cent to 15.9 cents yesterday in Hong Kong while its 14.5 per cent bond due in 2024 rose nearly 47 per cent to 16.88 cents, poised for its largest advance since September 2021.

Trading in Fantasia’s shares has been suspended since April 1 after the developer failed to publish its annual results.

China’s property market, one of the most important sectors supporting the country’s rapid economic growth, has been rattled by slumping home prices, weak sales and a crippling debt crisis among major developers.

Some 50 developers have defaulted on an estimated US$100 billion worth of offshore bonds over the past two years, according to JPMorgan, and 39 of them are still in the midst of debt workouts with creditors, involving almost US$117 billion.

The top regulator is drafting a comprehensive action plan to aid embattled developers with 450 billion yuan (HK$524.4 billion) in financing, as well as debt extensions, as Beijing prioritises shoring up the housing market, state-run news agency Xinhua reported last Friday.

Financial regulators have drafted a package of 21 major tasks aimed at alleviating a liquidity crunch for what Beijing deems “good quality developers”, according to Xinhua.

By Pearl Liu