NEW YORK (AFP) - Debt-crippled Chinese real estate giant Evergrande's troubles are being watched closely by foreign investors, but markets do not seem to fear a major contagion, at least so far. With a debt load of US$300 billion (S$403 billion), the threat of bankruptcy is real, especially as Evergrande hinted on Tuesday (Sept 14) that it may not be able to pay its creditors.

However, IG France analyst Alexandre Baradez said "the market is not surprised as it may have been by Lehman Brothers", the American banking giant whose spectacular collapse in 2008 was the spark that ignited the global financial crisis.

"Lehman was a shock: a well-rated bank that disappeared overnight," Mr Baradez told AFP. But with the Chinese firm "investors are preparing".

A Mainly Domestic Problem

With a presence in more than 280 cities, Evergrande is one of the largest private companies in China and one of its leading real estate developers.

Crippled with debt, the firm saw its Hong Kong-listed shares collapse this year on mounting fears for its financial health.

The Chinese government seems determined to get control of the Evergrande situation, even if it means forcing the company to go out of business.

The question is how a possible debt default would be handled by Beijing.

"The chances of a disorderly default for Evergrande is probably not very high because of the social chaos that could ensue from consumers and lost life-savings," notes Ms Omotunde Lawal, head of emerging markets corporate debt at investment management firm Barings.

Beijing would want to avoid that given "the overall emphasis on social and economic stability in China", she said.

Analysts instead expect to see a government-led restructuring that will pay off debts while maintaining certain business activities in order to limit losses.

The exposure of foreign clients also remains relatively minor: only about US$7 billion of Evergrande's debt is held by non-Chinese investors.

Mr Baradez said that "is not an amount that is impossible to absorb or likely to frighten" financial markets.

'Domino Effect'

Even if the global financial system is likely safe from disruption, the company's struggles still could have repercussions beyond China.

"It is possible that an American hedge fund has bought Evergrande debt and must sell other positions to hedge, which could cause a domino effect," Mr Baradez cautioned.

He said the situation is reminiscent of the Archegos scandal at the end of March, when a New York investment company inflicted billions of dollars in losses on several banks when it took particularly risky positions.

The Evergrande crisis also could dampen enthusiasm of foreign investors looking to position themselves in the Chinese market.

Homa Capital director of research and issuer analysis Lionel Melka said: "It's only the naive who discover just today that emerging markets do not have the same regulations or the same protections."

Conversely, asset managers could seek to step into the breach.

Mr Lawal said: "If Evergrande eventually defaults, it will create a buying opportunity."

For foreign investors, especially Americans, access to markets in China, where the government has control over the fate of companies, creates a dilemma.

Some financial players and political leaders are wondering if too large a presence in China might be counterproductive.

"Does the United States want their big fund managers or their pension funds to expose themselves to China, which finances its competitiveness?" Mr Baradez wondered.