China debt woes to weigh on Asia high-yield issues in first half of 2022, bankers say

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Dec 19, 2021  •  59 minutes in the past  •  2 minute learn  • 


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HONG KONG — China’s property sector debt turmoil is about to preserve a lid on Asian high-yield company bond offers in the first half of subsequent 12 months after a string of defaults by actual property companies left international traders licking their wounds, bankers mentioned.

Chinese property builders account for the most important portion of high-yield, also called junk bonds, offers in the area.

Volume of such issues has been badly dented by considerations over the monetary well being of Chinese builders, with issuance of high-yield company bonds in the Asia-Pacific area falling in 2021 to its lowest in three years.

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China Evergrande Group and Kaisa Group each missed bond funds this 12 months.

The failure to make funds, adopted by a string of credit standing downgrades of indebted builders, has roiled China’s high-yield debt, sparked outflows and made asset managers jittery about issuers in the area.

Across the Asia-Pacific area, there was $50.4 billion price of high-yield company bonds issued this 12 months, the bottom since 2018 in contrast to $63.9 billion in 2020, in accordance to Refinitiv figures. In increased grades of credit score throughout the area, a powerful begin to the 12 months means volumes shall be increased for 2021 in contrast to the 12 months prior.

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China accounted for many of the regional decline, as traders started to shut their books early to keep away from the contagion and fallout from the property sector sell-off over the previous quarter.

“It’s a reasonably short list of names that could reopen the high-yield market,” mentioned Ernst Grabowski, head of Asia Pacific debt syndicate at Morgan Stanley.

“It would have to be a company where most investors feel that it’s relatively safe as a credit proposition and where they assess there is enough support from other investors and where they deem liquidity is going to be decent.”

New high-yield offers out of China in each greenback and yuan denomination fell to $3.2 billion in the previous quarter from $9.7 billion in the third quarter, the Refinitiv information confirmed.

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The first deal to break the high-yield freeze would wish to be from a stronger firm to give investor the boldness that new issuance might be carried out to open up the market to different issuers, advisors mentioned.

“New issuance from the (Chinese) property sector I think could be sometime in the first half, maybe even first quarter,” mentioned Avinash Thakur, Barclays’ Asia Pacific head of debt origination.

“Debt investors are more focused on the extent of leverage in corporate China but in a way they feel that this correction happening now has been overdue.”

A brand new issuance would carry a considerably increased rate of interest for the businesses in contrast to offers earlier in 2020 given the market turmoil, the bankers mentioned, which ought to drive demand from traders.

“Investors will realize there are still good credits in Asia, and when there’s a period of no activity, a lot of investors are hoarding cash which they have to deploy,” mentioned Philip Lee, a accomplice at legislation agency DLA Piper.

However, it may take one other six months for the market to open, he mentioned. (Reporting by Scott Murdoch; Editing by Sumeet Chatterjee and Ana Nicolaci da Costa)

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