Evergrande’s debt woes pose risks to China’s property sector

© Reuters. FILE PHOTO: The China Evergrande Centre building sign is seen in Hong Kong, China. August 25, 2021. REUTERS/Tyrone Siu/File Photo

LONDON (Reuters) – Evergrande Group’s debt crisis could pose spillover risks to the broader Chinese property sector, Goldman Sachs (NYSE:) said in a note on Wednesday.

The developer, which has liabilities of nearly two trillion yuan ($305 billion), is trying to raise funds to pay lenders and suppliers as it teeters between a managed collapse or the more distant prospect of a bailout by Beijing.

“We believe that further disruptions to the company’s property development operations can be very negative for sentiment amongst domestic property buyers and investors, and potentially spillover to the broader property sector,” Goldman Sachs’ Kenneth Ho and Chakki Ting wrote in the note.

If the property operations can be maintained as a going concern, that could mean less scope for contagion, the analysts added.

Possible options for Evergrande could include a corporate overhaul to ensure the onshore operations continue, bringing in third parties to invest in the company, and also potential debt and equity restructuring, the analysts wrote.

Goldman Sachs said offshore bond market sentiment towards Evergrande was also likely to be affected by recovery prospects under a debt restructuring.

With the company’s U.S. dollar-denominated bonds priced around the mid-20s cents, and those of subsidiary Tianji Holding just below 20, contagion impact may be limited if restructuring prospects were close to current market levels, the analysts wrote.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.