LONDON (Reuters) – Goldman Sachs said on Friday it now expects around one third of high-yield China property firms to default in 2022, with stresses on bonds increasingly emerging through maturity extensions.
Since the start of the year, all 22 Chinese high-yield issuers that either defaulted on their dollar bonds or undertook bond exchanges had been linked to the country’s embattled property sector, the bank found.
“Unlike in previous years, more issuers have conducted bond exchanges than have defaulted so far this year,” Kenneth Ho said in a note to clients, raising his default rate forecast to 31.6% from 19% previously.
“We view bond exchanges and maturity extensions as efforts that provide short term relief on credit stresses by pushing bond maturities to a later date, but are not sufficient to resolve the credit issues.”
Raising the China property high-yield default forecast pushed up Goldman Sachs’ forecast for the default rate among high-yield Asian corporate issuers to 15.5% from 9.3% previously — not far off the record of 17.8% recorded in 2021.
A crunch in China’s key property sector emerged about a year ago, when a debt market squeeze sparked a first wave of defaults.
(Reporting by Karin Strohecker; editing by Dhara Ranasinghe)