Goldman says China high-yield developers' default rate understates stresses

China High Speed Transmission Equipment

18/03/2022 03:52

SHANGHAI, March 18 (Reuters) - Chinese high-yield property
issuers have by one measure defaulted on nearly a quarter of
their outstanding bonds this year, Goldman Sachs analysts
estimated, highlighting liquidity stress as Beijing looks to
stabilise the battered sector.
    Estimating the year-to-date default rate at 5.5%, Kenneth Ho
and Chakki Ting said in a note Friday that this headline figure
understated stress in a sector where developers have entered
into bond exchanges to avoid triggering defaults.
    "If we assume all the bonds from issuers that have entered
into bond exchange or maturity extension transactions as being
in default, the (year-to-date) default rate would rise to
23.4%," they said.
    Ho and Ting said they maintained a default forecast for the
sector of 19% for 2022, with a bull case of 10.5% and a downside
case of 31.6%.
    "Whilst credit stresses have picked up, China policymakers
have also reiterated their accommodative policy stance," they
said, adding that "risks are clearly tilted towards the downside
case."
    Of bonds in the sector that have passed their final maturity
dates so far this year, 31% have entered into bond exchange or
maturity extension transactions, 26% have defaulted and 42% were
fully repaid.
    More bond exchanges and defaults are likely, with $2.3
billion maturing in April, and more than $3 billion each in
June, July and August, they said.
    Vice Premier Liu He, China's economic tsar, said on
Wednesday that the government needs to reduce risks in the
property industry, and proposed measures to facilitate a new
development model for the sector.  urn:newsml:reuters.com:*:nL2N2VJ0Y6
    

 (Reporting by Andrew Galbraith; Editing by Rashmi Aich)
 ((Andrew.Galbraith@tr.com; +86 21 2083 0079; Reuters Messaging:
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