Goldman Sachs said the overseas bond market’s confidence in Evergrande could also be affected by prospects for a recovery in the context of a debt restructuring.
The Evergrande Group debt crisis could pose a risk of contagion for the Chinese real estate sector as a wholeGoldman Sachs said in a note published Wednesday.
The property developer, who has a liability of almost two trillion yuan (about US $ 305 billion), is trying to raise funds to pay lenders and suppliers, while he is torn between a controlled collapse and the more distant prospect of a bailout for part of Beijing.
“We believe that a major disruption of the company’s property development operations could be very negative for the confidence of buyers and investors. real estate companies, and could be extended to real estate in general, “wrote Goldman Sachs’ Kenneth Ho and Chakki Ting in the note.
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Analysts added that if real estate operations are maintained as a going concern, the contagion margin could be lower.
JPMorgan also warned of the risk of repercussions.
“With recent events accelerating to the downside, We believe that additional maneuvers by the Government are necessary to avoid a possible contagion“the bank said, adding that it expected operations to continue to protect the interests of customers and suppliers.
“If politicians follow the government’s guidelines to ensure a stable housing market, we do not expect the company’s impending default to be too disruptive for the sector,” JPMorgan said.
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Goldman Sachs analysts said that potential options for Evergrande could include a corporate review to ensure the continuity of onshore operations, bringing in third parties to invest in the company, and also a potential debt and equity restructuring.
Goldman Sachs said that overseas bond market sentiment in Evergrande could also be affected by prospects for recovery in the context of a debt restructuring.
With the company’s bonds denominated in US dollars trading at around 20 cents on the dollar, and those of subsidiary Tianji Holding just below 20, the impact of contagion may be limited if the prospects for restructuring approach current levels, analysts wrote.
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