Asian corporate issuers looking to tap the debt capital markets need to be prepared to offer a premium to secondary market levels and get a credit rating if they want to get a deal away before the end of the year.
The ongoing emerging market volatility and the rerating of emerging market credits caused by the expected tapering of the Federal Reserve’s quantitative easing programme means life has got tougher for corporate issuers, according to a panel at Euromoney Conferences’ Global Borrowers and Asia Investors Forum on September 24.
While the bull market during the first five months of the year, meant borrowers could get away with little or no concession, investors are now demanding more of a pickup.
‘Over the next six to 12 months, I do believe demand [for Asian corporate bonds] is not going to be as strong but it will be open to decent names who are willing to pay up,” said Tse Chern Chia, senior director, head of Singapore and Asia fixed income at UOB Asset Management. “For Chinese, Indonesia and India names, they will need to offer a concession of 25-30bp, Korea will need to offer a slight premium while Singaporean, Malaysian and Thai names can probably come flat.”
However, even if pricing increases, Kiyoshi Nisimura, chief executive officer at the Credit Guarantee & Investment Facility, says high yield is likely to remain shut out.
“Compared to before June, when the booming market was high yield, that has basically now crashed, but if you look at investment grade markets, they are coming up well, as are local currency markets,” he said.
Sub-investment grade US dollar bonds from corporate accounted for 35% of total issuance in the year until May 31. In the period since June 1 to date, that has fallen to 16%, according to Dealogic.
And corporates that do take the plunge are more likely opt for dollars rather than local currencies.
“The dollar market is more resilient than local currencies markets as there are more fund flows. That said it does depend on which local currency. CNH is better than some others but dollar remains the strongest market in Asia,” said Anyi Wang, head of corporate finance and relations at Yanlord Land Group.
The current volatility may also act as a short term deterrent to issuers selling bonds without a credit rating argues, Peter Davis, head of treasury at BOC Aviation. The company received its first credit ratings last June, Fitch rating the company ‘A-‘ and Standard & Poor’s assigning a ‘BBB’ rating.
“I think a credit rating is now more important, partly because of the volatility. Being unrated makes it less clear about your ability to issuer at all point in the cycle. For us wanting to do benchmark dollar bond getting an investment grade rating was an important step to take,” he said.
But some borrowers are undeterred. For example, earlier this month Chinese insurer Ping An mandated Bank of America Merrill Lynch and HSBC to arrange roadshows for an unrated dollar bond.