Asia’s dollar bond market has gone from feast to famine. After hitting record year-to-date levels, new issue volumes have slumped to the lowest level since 2008 this month thanks to turmoil in the global financial markets.
According to Dealogic, Asia ex-Japan borrowers have raised a total of $429 million so far this month. This is the lowest amount raised in a single month since October 2008 — a month after Lehman filed for bankruptcy. A combination of fears that rates will rise and China’s liquidity crunch have caused yields and credit default swaps to spike in the region.
The iTraxx Asia Investment Grade Index, which had traded as low as 99.5 on May 7, spiked to 168 last Thursday and has continued to stay at those elevated levels.
According to debt bankers, some 15 deals have either been put on hold or shelved altogether. Others that were contemplating bond issues have chosen not to go ahead. “A few issuers have put out RFPs [requests for proposals], but in the meantime decided not to proceed,” says one debt banker.
Borrowers that have held roadshows include Pacnet, Maoye International, China Longyuan, Kookmin Bank and the Republic of Korea. Chinese mining company Yanzhou Coal, which was planning a dollar perpetual, has shelved its deal.
“Chinese SOEs are being asked to de-leverage,” says a second debt banker. “How do they do that? By issuing hybrids. But that window is gone.”
According to the first debt banker, the private banking bid, which supported much of the perpetual issuance this year, has faded as investors have lost money. Recent perpetuals are trading well under water. Agile Property’s bond, which it sold earlier this year, was quoted at 84 and yielding about 12.5%. The Citic Pacific perpetuals, which were also sold earlier this year, traded at 94 on Wednesday.
Perpetual bonds, which have no maturity, were popular as long as rates were low. But demand has slumped amid fears that rates are now heading up. Similarly, long-dated bonds have also sold off heavily.
For example, the PLN 42s were quoted at a cash price of 75 and the Indonesia 43s were at 79.5. Indonesia has been on an upward trajectory, but it is looking more vulnerable now as many are calling an end to the commodity super cycle. The Bumi Resources 2017s were trading at a cash price of 69.
Indonesia is also vulnerable as a high proportion of its bonds are held by foreign investors, which have been quick to flee when markets turned in the past. In contrast, the Philippine sovereign bonds, which historically have had strong onshore support, have held up with the long-dated Philippines 37s trading at 101.375.
With the summer holidays approaching, no one is predicting the market to return in a hurry. “Investment-grade bonds are easily down 10 points,” says the first debt banker. “It’s hard to see when the market might come back.”