© Reuters. FILE PHOTO: Residential and commercial buildings are located in downtown Guangzhou, China, Oct. 7, 2017. REUTERS/Bobby Yip

SHANGHAI (Reuters) – Chinese issuers of high-yield real estate have defaulted nearly a quarter of their outstanding bonds this year, Goldman Sachs (NYSE:) analysts estimate, highlighting liquidity stress as Beijing seeks to stabilize the battered sector.

Kenneth Ho and Chakki Ting estimate the default rate for the year so far at 5.5%. They said in a note Friday that this headline figure underestimated the stress in an industry where developers have entered bond exchanges to avoid triggering defaults.

“Assuming all bonds from issuers that entered into bond exchanges or maturity extension transactions as defaulted, the default rate would rise to 23.4%,” they said.

Ho and Ting said they maintained a standard industry forecast of 19% for 2022, with a bull case of 10.5% and a downward case of 31.6%.

“As credit stress has intensified, Chinese policymakers have also reiterated their accommodative policies,” they said, adding that “risks have clearly tilted to the downside.”

Of the bonds in the industry that have passed maturity so far this year, 31% have closed bond bills or maturity extension deals, 26% have defaulted and 42% have been fully repaid.

More bond exchanges and defaults are likely, with maturities of $2.3 billion in April and more than $3 billion each in June, July and August, they said.

Vice Premier Liu He, the economic czar of China, said on Wednesday that the government should reduce risks in the real estate sector and proposed measures to enable a new development model for the sector.

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This post Goldman says Chinese high-yield developers’ default rate is underestimating tensions

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