Asia Credit Advisors
  • Home
  • Profile
  • Investment Blog
  • Events and Press
    • Events
    • Press Articles
    • Media Quotes
  • Contact
  • Disclaimer

Junk bonds in Asia taking off

14/4/2013

2 Comments

 
Today's Financial Times article shines the spotlight on the growth of Asian high-yield bonds this year. It says that Asia ex-Japan high-yield bonds have contributed 30% of new supply this year, significantly higher than the 12% reached at the same point last year. In fact, according to our proprietary database, the share of corporate high-yield issues in USD has reached a much higher level of 44% so far this year.

While this may sound like excessive exuberance, reflecting the thirst for yield around the world, Asian high-yield is an established asset class and not just a passing fancy. In the previous five years, the share of high-yield issuance in Asian USD bonds has ranged from a low of 27% in 2012 to 53% in 2010. Traditionally, these figures have included bonds from Philippines and Indonesian sovereigns, as both used to be rated below investment-grade. But what is new is that the high-yield market share in Asia is rising even after these countries have been upgraded to investment grade.

Certainly, some of the development around the fringes of the Asian high-yield market is fueled by the global wave of liquidity. We have recently seen more issues of perpetual bonds, many of which have disappointed investors. We have also seen "CCC" rated issuers being able to issue new bonds this year - a first for the Asian bond market. More innovative (and riskier) structures have also managed to go through. But not all of Asian high-yield market growth is froth. There are many solid businesses and repeat issues that are accessing the market.

The challenge in the Asian high-yield segment is how to balance the weight of China, particularly the Chinese property sector. After the spate of corporate governance scandals in the equity and bond markets involving Chinese non-property industrial companies, the market had grown wary of these issues, but is beginning to open up to them again. This year, China has issued 52% of all the high-yield bonds. While the FT article talks about non-Chinese issuers emerging slowly, diversification still remains a challenge for Asian high-yield portfolios. Indonesian high-yield is picking up again, after the market had been smothered for a long time by impractical rules that required the issuers to take the approval of shareholders for the bond issue, including the proposed yield!

While there are challenges to the growth of Asian high-yield, it is a product here to stay and grow.
2 Comments
Adrian V. Festejo
16/4/2013 10:25:56 am

Am wary of these Asian high-yield bonds. How marketable are these in the secondary market? And apart from China accounting for 52% of these bonds, which other Asian countries have issued such bonds?

Reply
Dilip
16/4/2013 12:50:44 pm

Adrian,

Secondary market liquidity varies across bonds and over time. It does drop in times of distress, even if it is unrelated to the Asian high-yield itself (such as European flare-ups). Investors need to be able to judge liquidity.

This year, Sing, Philippines, HK and Indonesia have contributed most of the 48% non-China high-yield bonds.

Reply

Your comment will be posted after it is approved.


Leave a Reply.

    RSS Feed


    Author

    Dilip Parameswaran
    Twitter: @AsianCredit

    View my profile on LinkedIn

    Categories

    All
    Asia
    Asian Hard Currency Bonds
    Asian Hard Currency Bonds
    Bonds
    Books
    China
    Economics
    Equity
    High Yield
    High Yield
    India


    Archives

    September 2019
    January 2019
    May 2018
    January 2017
    September 2016
    May 2016
    January 2016
    November 2015
    August 2015
    June 2015
    March 2015
    February 2015
    January 2015
    November 2014
    October 2014
    September 2014
    June 2014
    March 2014
    January 2014
    November 2013
    October 2013
    September 2013
    July 2013
    June 2013
    May 2013
    April 2013


    Recent  posts

    FeedWind

    Like it? Share it!

Powered by Create your own unique website with customizable templates.