What lies beneath Asia’s high-yield iceberg
Asia’s high-yield market has taken off, driven by unprecedented demand from investors. Public deal structures are becoming increasingly aggressive and private deals are beginning to leak into the public markets, giving cause for concern. Chris Leahy reports.
FOR YEARS, ASIA’S high-yield debt market has been a nearly market, offering early promise only to fade later in the investment cycle. Last year all that changed. According to JPMorgan, Asian high-yield issues returned 11.45% in 2006, comfortably beating 10-year US treasury bills and investment-grade corporate and emerging market bonds. New issuance from Asia excluding Japan and Australia hit a record $7.7 billion (see chart), fuelled by foreign investment flows into the region and ample local liquidity. The market’s performance was all the more impressive since it withstood some stiff challenges, including a nuclear test by North Korea, a coup in Thailand and the bankruptcy of Chinese high-yield borrower Ocean Grand.
This year is already promising even more than 2006. Credit conditions remain benign and the perceived global credit default risk, which JPMorgan calculates at just 2%, remains low. Add to that the positive outlook for economic growth in Asia and increased allocation to Asian credits among international institutional investors, and it is not surprising that bankers are bullish.
Asia ex-Japan/Australia high-yield market
New issue volume since 2001