Don’t rush: Asia’s high yield need patience
Asian issuers are racing against the clock to push out new bonds, taking advantage of abundant liquidity and historically low yields. But with summer fast approaching, issuers — particularly high yield debut names — should go back to basics.
Asia ex-Japan G3 bond volumes of $209bn year-to-date have surpassed the $129.7bn recorded at the same time last year, and already reached 90% of the full year 2016 volume, according to Dealogic.
But what has become evident after the explosive supply are signs of weakness in the credit market, particularly on the high yield side. Premiums are being paid for new issuance, bonds are struggling in the aftermarket and last week some single B rated credits were forced to pull their transactions.
Liquidity and credit fundamentals are certainly not the problems. But investors are being increasingly discerning about the kind of bonds they gobble up — and potential borrowers will do well to pay heed to that, slow down and find their pace.
It is understandable that high yield issuers are eager to seize market windows as they appear to lock in cheap funding ahead of more interest rate hikes from the US Federal Reserve. But if there’s something that the recent market has shown is that slow and steady is the way to go, and marketing a deal well is more important than ever.
With non-stop deal flow over the past few weeks, buy-side analysts have had little time to study individual credits in depth, especially when it comes to new issues from unfamiliar sectors, or names that have no track record in the offshore bond market.
So far this year, 47 G3 deals have been printed by debut issuers in Asia ex-Japan, compared to 30 debut trades year-on-year, shows Dealogic.
One big gripe among investors recently is the lack of time to do the necessary credit work to get comfortable with the different stories, to learn the style of the borrower’s management, and dig into the firms’ financials including leverages.
With many borrowers recently launching their deals immediately after mandating banks, the buy-side has had little time to prep. By not spending long enough on the road, or not giving investors time to digest the credit story after a brief roadshow, issuers had made things harder for themselves.
It may sound old-fashioned, time consuming and perhaps expensive, but debut borrowers should go old-school with their transactions — by organising more site visits, meetings with management, or conducting non deal roadshows on a regular basis ahead of a deal. It is certainly tempting to rush to a market that looks ripe, but taking the time to get investors comfortable yields obvious benefits.
Most issuers have little to hide from investors. Most executives believe in their companies, and also know more about their sectors than practically anyone else. They should use that advantage.
Funding officials should be keen story-tellers. And if investors want to hear more, there is little use rushing to the last chapter.