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Fantasia Holdings follows Evergrande in defaulting as China’s property woes continue

Hard on the heels of the Evergrande crisis, another Chinese developer has failed to make a bond repayment on time in the latest sign of stress in China’s volatile property market.

Fantasia Holdings, a mid-sized builder which is listed on the Hong Kong Stock Exchange, told investors that it was due to repay a $206 million bond on Monday but admitted that it was unable to make the payment.

"It's A Disastrous Day" - All Hell Breaks Loose In China's Bond Markets
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"It's a disastrous day," Clarence Tam, fixed income PM at Avenue Asset Management in Hong Kong, told Reuters, highlighting how even some supposedly safer "investment grade" firms had now seen 20% wiped off their bonds. "We think it's driven by global fund outflow .... Fundamentally, we are worried the mortgage management onshore hits the developers' cash flow hard," he added, referring to concerns people could stop putting deposits down on new homes.

In other words, the dynamic we discussed over the weekend in which we explained why "China's Worst Case Scenario Is Now In Play" is spreading from the biggest rotten apples - i.e., Evergrande, Fantasia - to collapsing confidence in the property sector, to credits that until now were seen as healthy and immune from a property implosion. In short, the bursting of the US housing bubble has moved to China, and yes - that culminated with the original Lehman moment.

Meanwhile, JPMorgan analysts highlighted how international investors were now demanding the highest ever premium to buy or hold 'junk'-rated Chinese debt. There is now a whopping 1,200 basis point difference between the bank's closely-followed JACI China high yield index and a similar index of investment grade AA-rated local Chinese market bonds, known as "onshore" bonds. The option-adjusted spread on the ICE BofA Asian Dollar High Yield Corporate China Issuers Index (.MERACYC) is also at its widest ever.

"Evergrande's contagion risk is now spreading across other issuers and sectors," JPMorgan's analysts said, demonstrating a rare talent for observing the obvious.
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Anxious Chinese retail investors are bombarding listed companies with questions about their exposure to Zhongrong International Trust Co after missed payments by the trust company triggered fears of contagion across the country's financial system.

Investors had submitted more than 100 questions to dozens of Shanghai- and Shenzhen-listed companies via investor relation platforms asking whether they had bought Zhongrong's products, after two listed firms disclosed late on Friday that they had not received payment on maturing trust products from Zhongrong.

Politics

China Police Visit Shadow Bank Investors at Home to Quash UnrestPolice received names of clients across China, investors sayFears of contagion mount after Zhongrong missed payments

An investor in Jiangsu, the eastern province bordering the financial hub of Shanghai, said police visited her home one night this week and asked her not to join any demonstrations involving people angry about losses. They recorded details of her investment, including the amount involved, and said regulators would handle the matter, the investor said.