Bonds of Fantasia Holdings Group Co. (1777), a developer based in China’s southern city of Shenzhen, plunged to record lows after authorities stopped processing transaction agreements for four apartments.
The declines came before Fantasia said in a Hong Kong stock exchange filing yesterday evening that it had sold the apartments in 2012 and 2013, the blockage had nothing to do with the company and that operations are normal.
Shenzhen developers have come under scrutiny after Kaisa Group Holdings Ltd. had several projects frozen and last week missed a coupon payment on $500 million of its dollar bonds. It’s inching toward becoming the first Chinese developer to default in the dollar bond market. Kaisa is also being investigated about links to a senior Shenzhen official who’s under probe, two people familiar with the matter said this week.
“This political risk has dramatically changed the risk reward dynamic of investing in China’s high-yield property sector,” said Alan Kao, a credit strategist in Hong Kong at Haitong International Securities Co. “This is not constructive.”
Fantasia’s 2019 dollar-denominated notes slumped to 67.1 cents from 77 cents as of 4:14 p.m. in Hong Kong on Jan. 15, the lowest since they were sold to investors at par, or 100 cents on the dollar, in January 2014. The builder’s shares dropped 4.7 percent to close at 82 Hong Kong cents. Four individual apartment units in Shenzhen have been placed under a “restricted” status on the municipality’s website, which didn’t indicate when the change was made.
‘Slightly Confusing’
“We find the explanation for the locked units slightly confusing as it’s not clear to us why the units, if sold, would continue to be on the website,” Charles Macgregor, the head of Asia high-yield research at Lucror Analytics, a Singapore-based independent credit researcher, wrote in a note before the company released its official statement.
Investors are wary of any possible regulatory or political risks associated with Chinese developers, MacGregor said. Lucror changed its rating on Fantasia’s 2017 notes on Jan. 15, saying news of the locked units would affect their price.
Fantasia, which develops commercial and residential properties in the Chengdu-Chongqing Economic Zone and the Pearl River Delta region, has $1.08 billion-equivalent of bonds outstanding, according to data compiled by Bloomberg. Its $250 million of 2017 debentures earlier plunged to a record low 75 cents on the dollar.
Glorious Property
Glorious Property Holdings Ltd. (845)’s equities and bonds were also affected by reports that it later denied. Its $300 million of 13 percent notes due in October tumbled 3.5 cents to 77.4 cents on the dollar. Its stock slid as much as 35 percent in Hong Kong, the most since October 2009.
Two projects developed by Glorious in Shanghai are frozen by a local court and property owners have been notified the project completion date will be delayed, news website Jiemian reported on Jan. 12, citing its own investigation.
Glorious said in a Hong Kong stock exchange filing yesterday evening that it’s providing project-management services to two developments by Shanghai Lu Yuan Industrial Investment Group Co. in Shanghai’s Fengxian district.
The company’s founder and controlling shareholder Zhang Zhirong came into the Shanghai office of Jiemian on Jan. 15, the Shanghai-based media group said on its microblog. Jiemian reported earlier that Zhang had left for U.S.
Zhang denied any connection to Ling Jihua, who’s a former top aide of retired president Hu Jintao and is being probed, or his brother who is also under investigation, contrary to the Jiemian article, according to the company statement.
To contact the reporters on this story: Moxy Ying in Hong Kong at yying13@bloomberg.net; Tanya Angerer in Singapore at tangerer@bloomberg.net; David Yong in Singapore at dyong@bloomberg.net
To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net Joshua Fellman, Bruce Rule