[Epoch Times October 07, 2021]On Monday, October 4, a bond with a balance of US$206 million in Fantasia Holdings (01777.HK), a mainland real estate company listed in Hong Kong, matured. A group of investors believed that Fantasia would surely be able to repay the bonds and rushed into the market to buy these bonds, raising the price that hovered around 68 last week (the selling price of bonds with a face value of US$100 was US$68) to a net price of close to 100. .
Unexpectedly, Fantasia issued an announcement that night, stating that the company had not paid the bond. The announcement did not explain the reasons for default and non-payment of debts.
Early the next morning, the price of this batch of bonds plunged to around 21, and investors who took orders on the first day suffered heavy losses.
Fantasia Holdings has total assets of RMB 109.6 billion and liabilities of RMB 83 billion as of June 30 this year. Although the size is far smaller than Evergrande, its sales scale ranks 50th among the top 100 real estate companies in the country, so people exclaimed that “another top 100 real estate company defaulted on debt.” The identity of the founder of Fantasia, Zeng Baobao, as a member of the famous princeling party, also caused the breach of contract to attract attention. However, a closer look at the performance of Fantasia in recent years reveals some oddities.
The first strange thing: you shouldn’t borrow foreign debt at high interest rates for those who are short of money.
Fantasia was established in 1996 and initially invested in real estate development projects of other real estate companies. Only after Pan Jun, the current chairman of Fantasia, joined in 1999, he began to develop his own real estate. In 2016 and before, Fantasia took a “asset-light” road, realized the nation’s largest property management business acquisition case, continued to “buy, buy, and buy”, and successfully managed its subordinate property management company “Color Life” ( 01778.HK) was listed on the Hong Kong stock market and became the first property share. When it went public in 2014, Fantasia’s official website portrayed Color Life as the world’s largest community service operator.
However, in 2016, Fantasia announced a change in its business strategy, taking the path of “asset-heavy”, and began to join the ranks of all other real estate companies, continuously acquiring land and expanding the scale of development. It was this year that Fantasia issued a $500 million bond with an interest rate of 7.375% maturing in 2021. People generally think that a background company like Fantasia will not be short of money in China. Unexpectedly, the source of funds to support its newly established asset-heavy business strategy is high-interest-rate foreign debt in US dollars. At that time, the five-year loan interest rate of Chinese banks was only 5.15%. Fantasia switched to borrowing US dollar bonds with an interest rate of 7.375%. In addition to high interest rates, they also had to bear interest rate risks. This shows that Fantasia had financing difficulties in China in 2016, but had friends on Wall Street.
The second strange thing: Zeng Baobao, who has been behind the scenes for a long time, returns strongly.
There is no technical difficulty in operating real estate. As long as funds can be obtained, China’s real estate market over the past 30 years can make everyone successful, so almost all people in the red family are involved in real estate. Zeng Baobao started the Fantasia Year in 1996, but did not personally deal with the development projects, but invested money in other people’s projects to make money for himself. Before 2019, she retreated behind the scenes for a long time, indicating that she also has a relatively low-key side in high-profile. Opening the official website of Fantasia, you will also feel that Zeng Baobao deliberately low-key behind his high-profile identity: as the founder and holding 65% of the shares of Fantasia Holdings, he listed himself as an executive director in the top management rankings and ranked in the company After the shareholder and chairman of the board of directors Pan Jun; the executives in the picture are all male, and Zeng Baobao is not seen.
In the fourth year after Fantasia changed its strategy and expanded its real estate development business, in 2019, Zeng Baobao returned to the front line of the company’s business and became the CEO, leading Fantasia into the path of increasingly heavy warehouses and land reserves. In 2020, it will spend 21.4 billion yuan to purchase 20 new plots of land; from this year to May, Fantasia has paid 6 billion yuan to purchase 3 plots.
The main source of funds needed to purchase land is still U.S. dollar bonds, and interest rates are higher. In June of this year, Morgan Stanley’s $200 million bond interest rate underwritten for Fantasia reached 14.5%.
Zeng Baobao, who returned in 2019, has completely changed his style, and his business method has been adventurous. The official website continues to announce and boast about the company’s scale and advancement. If the Fantasia is indeed due to a default due to poor capital turnover, then the aggressive approach is the cause of today’s debt crisis. If Fantasia maintains the conservative business style before 2016 and continues the asset-light business strategy, there will be no dilemma today.
Why did Zeng Baobao’s low-key and conservative style of corporate management in the past develop against the trend and become aggressive in this round of real estate regulation that has continued since the end of 2016? This is a mystery.
The third strange thing: Fantasia should have enough funds to repay the bonds due in October but defaulted.
In the first half of 2021, Fantasia Holdings achieved revenue of more than 10.9 billion yuan, an increase of 18.5% over the same period of the previous year, and its net profit exceeded 300 million yuan. The company has repeatedly stated that its funds are in good condition and there are no liquidity problems.
From May 12 to September 20, Fantasia, Zeng Baobao and Pan Jun frequently bought back senior notes. Check the Fantasia announcement, there were 21 announcements to buy back corporate bonds, with a face value of 93.4 million U.S. dollars (the actual payment for the repurchase should be lower than the face value, because Fantasia’s senior notes were already circulating at a discount); two tender offers Unredeemed 7.375% of the USD senior notes due in October 2021, with a total face value of USD 287 million.
These actions not only meant declaring to the public that its capital turnover was good, but also proved that Fantasia’s funds were relatively abundant, and showed that its controlling shareholders have full confidence in the company.
In response to more than 200 million U.S. dollars of unredeemed U.S. dollar bonds due in October, Fantasia announced twice this year that it has arranged funds to pay off the debt, and will use its own funds to repay the 500 million U.S. dollars due at the end of the year.
Although Fitch, Standard & Poor’s, and Moody’s and other rating agencies lowered Fantasia’s credit rating in September due to their single financing channels and excessive reliance on US dollar bonds, Wall Street no longer accepts Fantasia’s bond guarantees, but a series of facts This makes Fantasia’s funds look no big problem: In addition to the continuous bond repurchase, the interim report (June 30) still has cash and bank deposits of HK$27.1 billion; Country Garden purchases the core assets of the property management company of Fantasia. 3 billion Hong Kong dollars to Fantasia’s subsidiaries; 200 million US dollars of 14.5% USD bonds were issued in June; Chiyu Bank agreed in principle to provide 1.1 billion Hong Kong dollars in loans to Fantasia, and so on. All these give people the confidence to be able to repay their debts on time, so that before Fantasia announced the default, the price of its bonds in Hong Kong rose to nearly 100%.
The Wall Street Journal reported on October 4 that, according to a report by Chuanyi Zhou, a credit and debt analyst at Lucror Analytics, a representative of Fantasia Holdings also told investors a few days ago that Fantasia would pay for October to Period of this debt. She believes that Fantasia is not about having no money to repay debts, but not having the will to repay debts.
The situation behind the scenes is unknown. Either Fantasia suffered a problem that was not known to the outside world, and the funds were suddenly strained, leading to a breach of contract; or Zeng Baobao did not really lack funds, but chose to give up after working hard to maintain Fantasia’s credibility and prestige due to certain needs. Maintain the company’s image. The answer may lie in the political situation.
Editor in charge: Gao Yi#
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