| Author |
|
|
Henrik Raber Global Head, Capital Markets, |
Growing volumes and issuer base
As the largest bond market in the Asia ex-Japan region, China’s bond market has traditionally been dominated by high-yield supply from Chinese corporates. Last year, issuers from Greater China accounted for 78% of total volumes and the trend has continued into 2017. Nevertheless, the broadening of issuers continues, with more South and Southeast Asian players having issued or joined the pipeline in recent weeks. In January, for example, the market received a boost from India’s Jain Irrigation when it raised funds from the offshore debt market for the first time.
Deal sizes have also increased, with the average transaction size at $300 million compared with $260 million in 2016. Notably, there was a $1 billion offering by India’s Vedanta Resources in January, which alone accounts for 16% of issuance volumes year to date. The transaction also set a new record as the largest, single US dollar tranche for a high-yield commodities issuer in Asia.
Healthy investor demand
Along with the increased supply, demand for high-yield credit has been robust. In the hunt for yield, investors have had to look at longer-tenor bonds and also consider high-yield bonds that are lower down the credit spectrum. In fact, global high-yield funds have reported net inflows for five of the first seven weeks this year, with year-to-date inflow estimated at $917 million, compared with an outflow of $5.2 billion over the same period last year.
Indeed, Asian high-yield credits have appealed to investors, particularly with positive economic outlook for such countries as Indonesia and India, where healthy growth is forecast over the near term. All-in yields of Asian high-yield credits are trading near 6% currently, which is attractive compared with the investment-grade sector and other high-yield markets. The spread for high-yield bonds, compared with US treasuries and investment-grade bonds, has narrowed to multi-year lows.
Positive outlook
With market fundamentals in place and volatility forecast to stay low, we can expect the pace of Asian high-yield issuance to remain elevated over the near term. Since the start of 2017, Chinese regulators have encouraged Chinese corporates to raise funds offshore. The commercial real estate sector (which makes up a substantial proportion of Chinese high-yield debt) has $20 billion of refinancing expected this year, and a further $18 billion of debt maturing in 2018 which, given the current environment, we can expect issuers to prefund in advance. And similar to high-yield borrowers from South and Southeast Asia, the positive macro backdrop provides for business expansion and therefore funding opportunities.
Euromoney and Standard Chartered will be running a series of webinars on debt capital markets. The next will be ‘India states’ finances and borrowings: The other half of the story’ on July 19. Find out more.
 |
| Disclaimer
This material has been prepared by Standard Chartered Bank (SCB), a firm authorised by the United Kingdom’s Prudential Regulation Authority and regulated by the United Kingdom’s Financial Conduct Authority and Prudential Regulation Authority. It is not independent research material. This material has been produced for information and discussion purposes only and does not constitute advice or an invitation or recommendation to enter into any transaction.
Some of the information appearing herein may have been obtained from public sources and while SCB believes such information to be reliable, it has not been independently verified by SCB. Information contained herein is subject to change without notice. Any opinions or views of third parties expressed in this material are those of the third parties identified, and not of SCB or its affiliates.
SCB does not provide accounting, legal, regulatory or tax advice. This material does not provide any investment advice. While all reasonable care has been taken in preparing this material, SCB and its affiliates make no representation or warranty as to its accuracy or completeness, and no responsibility or liability is accepted for any errors of fact, omission or for any opinion expressed herein. You are advised to exercise your own independent judgment (with the advice of your professional advisers as necessary) with respect to the risks and consequences of any matter contained herein. SCB and its affiliates expressly disclaim any liability and responsibility for any damage or losses you may suffer from your use of or reliance on this material.
SCB or its affiliates may not have the necessary licenses to provide services or offer products in all countries or such provision of services or offering of products may be subject to the regulatory requirements of each jurisdiction. This material is not for distribution to any person to which, or any jurisdiction in which, its distribution would be prohibited.
You may wish to refer to the incorporation details of Standard Chartered PLC, Standard Chartered Bank and their subsidiaries athttp://www.standardchartered.com/en/incorporation-details.html. © Copyright 2017 Standard Chartered Bank. All rights reserved. All copyrights subsisting and arising out of these materials belong to Standard Chartered Bank and may not be reproduced, distributed, amended, modified, adapted, transmitted in any form, or translated in any way without the prior written consent of Standard Chartered Bank |