Junk Dollar Bond Sales Pulled in Asia as Risk Appetite Wanes
Three single-B rated companies have canceled their debut dollar bond issuance this week as investors sought more risk compensation amid rising yields on Asian dollar junk bonds.
Indonesian coal miner Geo Energy Resources Ltd. scrapped a planned offering of dollar notes due 2022 on Monday after a roadshow. On Tuesday, Lionbridge Capital Co., a Chinese financial leasing service provider, canceled its sale because of adverse market conditions, while “wider price expectations of investors” scuttled Indian renewable energy company Continuum Energy Levanter Pte.’s planned bond, according to memos circulated to investors seen by Bloomberg.
"The bond cancellations show people are not complacent and are really asking for higher yields to compensate for the risks,” said Raymond Chia, head of credit research for Asia ex- Japan at Schroder Investment Management in Singapore. “It’s good to see investors doing this and instead of accepting weaker fundamentals and tight pricing.”
The pulled deals come amid a flood of junk debt sales in Asia with $40.6 billion of dollar bond issuance so far this year. Average yields on Asian high-yield company bonds have climbed 34 basis points since a low in mid-April, JPMorgan Chase & Co. indexes show. The market has become more price sensitive for weaker high-yield credits, especially debut offerors, say Schroder Investment Management and Value Partners Group Ltd.
“Investors are suffering indigestion from the unusually high levels of new issuance in recent months,” said Charles Macgregor, head of emerging markets at Lucror Analytics in Singapore. “They are becoming more selective and seemingly have less appetite for single B names.”
Among Asian dollar high-yield bonds, single-B rated names have returned 2.5 percent this year, compared with 4.2 percent for BB credits, Bank of America Merrill Lynch indexes show.
Order books for single B-rated Asia ex-Japan dollar bonds sold in June and July amounted to about 1.9 times versus 5.3 times for BB-rated bonds and 3.6 times for A-rated bonds.
Pricing Mismatch
BlackRock Inc., the world’s largest money manager, says high-yield bonds in Asia are expensive on a risk adjusted basis.
“That’s where the mismatch between the investor expectation and borrower expectation has been the reason why you see some of the high-yield issuers not being able to come to the market,” Neeraj Seth, the Singapore-based head of Asia credit at BlackRock, said in a press briefing on Wednesday.
There have been no new issue announcements from Asian borrowers for dollar bonds Wednesday.
A representative at Continuum Energy wasn’t immediately available for comment when contacted by phone and the company didn’t immediately respond to an email. Lionbridge said by email the cancellation was due to market reasons and declined further comment.
The low-yield environment earlier this year had encouraged more companies to borrow, including those who had never tapped the debt market previously, according to Gordon Ip, head of fixed income at Hong Kong-based Value Partners Group Ltd.
“Many debut issuers are being unrealistic about a fair pricing level, and I’m glad to see the market push back on these names,” said Ip. “Everything has compressed to trade at a tight level this year, but there is a limit of how tight things can be pushed.”
After a strong run for the dollar bond high-yield market for most of the year, it needs a break, said Steve Wang, head of fixed income research at BOC International Holdings Ltd. in Hong Kong.
The market is “now taking some profit off the table and lightening up could be a smart choice for the summer," he said.
Bloomberg News
July 26, 2017, 08:27:32 GMT
Reporting by Carrie Hong, Annie Lee and Lianting Tu; Editing by Neha D'silva and Chan Tien Hin