Cikirang Listrindo, an Indonesian power company that has not tapped the market for two years, made an eye-popping return to the dollar bond market this week, generating $4.3bn of demand for its $500m deal, and taking out an old issue in the process.
That sort of response dwarfs the bid Asian companies usually get for high yield debt. It broadly reflects the demand for new issues in the investment grade market this year, but Barclays Capital and Credit Suisse deserve a lot credit for managing to mirror that when bringing a high yield deal. They have proved quite how much interest there is in companies from emerging Asia that are willing to pay a good price.
This deal has left some $3.8bn of demand unallocated. If they have any sense, other companies will now be preparing to snap that up. There is always a bit of inflation in order books, but nowhere near enough to obscure the central message this deal delivered to issuers: the high yield market is well and truly open.
There is now going to be a rush to the market from high yield issuers in Southeast Asia. It might seem a little early to raise the prospect of over-crowding, but in Asia the issue is practically inevitable. Bankers will have to keep an eye out for signs of investor fatigue.
Companies should take their bankers’ advice: there is no reason to wait. For those credits that get knocked back, very little is lost; but for those who are able to get demand, they can likely meet the vast majority of their funding needs in one fell swoop in this environment. (Even if the market remains open all year for high yield companies, deal sizes are likely to drop as investors start to fill their portfolios.)
Indonesian companies are clearly on the menu, but those across the rest of Southeast Asia are also likely to get good demand. Chinese companies will be a tougher sell: investors were burnt in the high yield market last year — and it was mainland borrowers that set most of the fires.
There has already been some demand for Chinese names. Shui On Land sold a high yield deal at the end of last week, raising $400m — and generating a respectable order book of around $650m. But Shui On is a well-known name in the market, and is investors are becoming comfortable with property names again. Bankers think that Chinese industrials are unlikely to get the reception that Shui On achieved, let alone the mammoth response generated by Cikirang.
Wherever you are in Asia, the response to Cikirang’s deal can only be considered good news. The deal has proved the demand is out there — and issuers should rush to the market while they still can.