Capital markets: HSBC hits high-yield heights
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Capital markets: HSBC hits high-yield heights

More issuance expected; Indonesia performance remains lacklustre

Competition between bookrunners in the Asian high-yield arena is becoming fiercer, with HSBC topping Dealogic’s rankings for the first time on deal activity and volume, ahead of traditional market leaders Deutsche Bank and Citi.

HSBC has led 15 high-yield bonds worth $1.8 billion, or 15.7% of total market share, so far this year, according to the data provider. During the same period last year, it had led eight bonds, accounting for 9.3% of overall market share.

HSBC’s recent activity in high-yield began in March when it priced $750 million of bonds to yield 6.875% for Citic Pacific, a Hong Kong-based company that focuses on infrastructure in China.

HSBC worked with UBS, Deutsche and Standard Chartered on the deal. Citic Pacific, rated Ba1/BB+ by Moody’s and Standard & Poor’s, highlighted the substantial appetite for Asian high-yield names, issuing two more successful bonds: one in April and one in October.

Chart toppers Asia (ex Japan and Australasia) high-yield DCM issuance ranking, 2012 YTD

The high-yield bond market has grown rapidly since the start of the financial crisis in 2008, trebling in size and now averaging around $15 billion per year for Asia ex-Japan and Australasia. However, while growth has been rapid, the market has been volatile, particularly this past year. "The second half of 2011 was dire for credit globally," says Haitham Ghattas, director of high-yield and leveraged debt capital markets at Deutsche. "There was huge stress on the market, and risk aversion meant there was very little high-yield issuance in Asia at this time.

"After the long-term refinancing operations in December 2011 and then again in February, there was a liquidity injection in the market. There was a lot more activity in Asian high-yield in the first quarter of 2012 as a result – probably more than was originally anticipated at the end of 2011."

In addition, the announcement of unshakable European Central Bank support for the eurozone and the Fed’s commitment to QE3 saw the market rally again last month, with another flurry of high-yield issuance in Asia. As Ghattas stated in late October: "The most active period for high-yield in Asia has actually been over the last three weeks.

"Asia is always slightly slower off the mark compared with other markets in high-yield because the market is not quite as developed and issuers don’t have as much capacity to move quickly. There is also a bit of a pack mentality in Asia. Once one issue goes well, this often opens up the floodgates."

Another senior banker at an international bank based in Hong Kong, adds: "Unpacking and dealing with the concerns revolving around the eurozone debt crisis helped alleviate the pressure on the high-yield market in Asia."

Indeed, the busiest month for HSBC this year was October, when the bank was also a bookrunner for China’s Yuzhou Properties, Longfor Properties and China South City. And macro shocks to the economy aside, bankers agree that high-yield in Asia will continue to perform well to the end of this year and into the beginning of next.

Last month was also a busy time for Deutsche, which led the Dealogic rankings last year in deal volume and activity, but has since dropped to third and second respectively. It was the sole global coordinator and joint bookrunner with Bank of America Merrill Lynch, Credit Suisse and Citi on the successful Lippo Karawaci deal. Indonesia’s largest property developer issued $100 million, seven-year global senior notes with a yield of 5.879% and saw an order book of $840 million.

Rod Sykes, managing director, commercial banking coverage, Asia-Pacific, global banking at HSBC
Rod Sykes, managing director, commercial banking coverage, Asia-Pacific, global banking at HSBC

Also, Deutsche and HSBC, along with Barclays, Standard Chartered and Morgan Stanley, worked as bookrunners for Longfor, one of China’s leading property developers. Priced on October 11, it attracted a substantial $13 billion order book for its $400 million bond, offering a seven-year coupon of 6.875%. Excluding state-owned enterprises, the Longfor deal achieved the tightest yield in China high-yield this year. "The coupon for Longfor’s debut issuance in March 2011 was at 9.5%, but now the company can command a lower yield because the performance of the company has improved," says Wallace Lam, managing director, head of Asia high-yield capital markets and commercial banking debt origination at HSBC.

"However, it may not be applicable to all issuers across the board as the reoffer yield fundamentally reflects the intrinsic credit quality and performance of a company."

Leading the pack in Asian high-yield are China and Indonesia. However, excluding the recent Lippo Karawaci issue, Indonesia has shown lacklustre performance so far this year, despite the sovereign being promoted to investment grade by ratings agencies Fitch in December 2011 and Moody’s in January.

"Traditionally, China and Indonesia have dominated issuance volumes in the Asian high yield market, but Indonesian volumes have declined this year," says Rod Sykes, managing director, commercial banking coverage, Asia-Pacific, global banking at HSBC. "[This is] because there has been plenty of liquidity in the banking sector there. But we’re confident that Indonesian issuers will continue to access the high-yield market for longer term capital and investor diversification."

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