Credit Suisse shares views on high-yield issuance in Asia

The volume of high-yield bond issuance in Asia in 2010 should surpass the volumes achieved in 2009, when $6.8 billion was raised from corporate issuers alone, according to Derek Armstrong, head of debt capital markets for Asia at Credit Suisse.  

The market will see a combination of repeat issuers looking to refinance maturing debt and debut issuers that have either entered the capital markets through an initial public offering or have weathered the recession and are now looking to fund their capital expenditure requirements through debt financing, he told FinanceAsia in a recent interview.

Credit Suisse was awarded by FinanceAsia as the Best High Yield Bond House in 2009 and was recognised as one of the lead arrangers on last year's Best High Yield Bond Deal (Adaro's $800 million issue in October). The Swiss bank arranged 10 bond deals for issuers in Asia ex-Japan last year, of which five were high-yield corporates or non-investment grade emerging markets sovereigns: PT Adaro Indonesia, Bumi Capital, Lumena Resources Corp and the two deals for the Republic of the Philippines in January and July. The combined size of these five deals was $3.6 billion.

"High yield is very much a part of Credit Suisse's DNA. That is clearly reflected in our structuring, execution and distribution capabilities, but it also extends to a commitment to provide first-class research coverage and aftermarket support for our clients," said Armstrong. "High yield will continue to be a key focus for Credit Suisse."

The high-yield market has been busy again in 2010 with five of the seven deals completed so far fitting into this category. Of these, Credit Suisse has been a joint bookrunner on two -- Indonesia's $2 billion issue and PT Cikarang Listrindo's $300 million bond.

The strong start to the year means that high-yield issuance has accounted for the bulk of the G3 volume in non-Japan Asia so far. By contrast, high-yield issuance made up only around 6% of overall volumes last year, mainly in the form of BB rated credits. This was much lower than the 22% of overall volumes that high yield achieved in 2006, which was a record year for this product in Asia. Armstrong explained that a broader range of issuers have greater confidence this year that there will be windows in which they can execute deals -- a confidence which was absent until the later part of last year.

The risk with a strong reception for deals from both repeat and debut issuers is that it could lead to a backlog of issues in the system, which was the case around October of last year.

"There was a window of opportunity in the second half of 2009 which led to a blockage in the system by the end of the third quarter," said Armstrong. "As a result, some of the companies were not able to achieve such aggressive execution because the glut of issuance overwhelmed the investor base."

Market conditions have remained relatively favourable this year, but the window before Chinese New Year is closing quickly. If the market is flooded now, there is a possibility that the bonds will perform poorly in the secondary market, which might affect the quality of the order book for future issuers, especially since they are likely to come against a backdrop of tightening monetary policies worldwide.

However, having learnt from last year's influx, it is expected that the Asian high-yield market will see a more consistent flow throughout the year. "Issuers and investors are feeling more confident about the reception these deals will get and for that reason, I think we can expect a more orderly approach in the execution," Armstrong said.

Indonesia and China are once again expected to provide the bulk of the high-yield corporate supply. January gave a taste of what is expected to follow this year with issuers like Evergrande Real Estate Group and Cikarang Listrindo tapping the market.