* Indian, Indonesian companies lining up deals
* China dominated Asian high-yield bonds in first half
* Yield-hungry investors looking to diversify risks
By Lianting Tu
SINGAPORE, July 18 (IFR) - The pipeline for Asian high-yield
bonds is building once more after a relatively quiet second
quarter. This time, however, non-Chinese borrowers are taking
centre stage as investors seek to diversify their portfolios
beyond the PRC real-estate sector.
In the past three weeks, at least eight Asian companies have
sold, or announced plans to sell, sub-investment-grade US dollar
bonds. Indian and South-East Asian borrowers, such as Thai
Airways, Modernland Realty and Pakuwon Jati, are among the
latest to emerge with new issues.
"My sense is that credit investors will welcome anything
outside of China," said Raymond Chia, head of Asian credit
research at Schroders.
"The diversification requirement is strong," Chia said.
"Anything outside of the conventional Chinese property and
Chiense state-owned enterprise space will be likely to attract
A slew of Indian companies, including Rolta India,
Greenko Group, Global Cloud Xchange and Tata Steel
, announced high-yield bonds in the past few weeks on
the heels of the election of pro-business reformer Narenda Modi
as prime minster.
No Indian entity sold a high-yield bond in dollars in the
first half of this year, while China accounted for US$7.6bn, or
76% of all US dollar corporate high-yield issues out of Asia.
"In terms of new-issue supply, the Indian high-yield market
has historically underwhelmed," said Haitham Ghattas, head of
high yield capital markets at Deutsche Bank.
"Given the scale of the economy and financing needs of the
corporate sector, it's natural that the market should develop,"
Ghattas said. "Investors are encouraged by the proposed
pro-market policy reforms coming out of the new government and
they believe India is an attractive destination to put their
money to work."
Excluding government-linked entities, Asian companies sold
US$9.9bn of high-yield bonds in G3 currencies in the first half
of 2014, according to Thomson Reuters data. That figure was down
40% year on year.
More Indian corporations are looking offshore after Modi's
government announced a cut in withholding tax on overseas coupon
payments in last week's budget, lowering the rate to 5% from
Indian borrowers, however, still need to issue bonds via
offshore subsidiaries as a way to circumvent regulations that
restrict overseas interest payments to no higher than 5% over
A firm secondary market and the dovish rates outlook from
the US Federal Reserve have underpinned a rising risk appetite
and investors' continued search for yield. Indeed, investors
believe the US market is key to the success of the forthcoming
Indian offerings, and all the recent deals announced have
adopted the 144A/Reg S format, which allows their purchase by
qualified institutional investors in the US.
Rolta and Global Cloud Xchange are in the technology sector
and Greenko is in the energy sector - segments that are popular
with US buyers. Tata Steel is also a well-known name in the US.
The stellar secondary performance during the second quarter
is also reducing the cost of funding for Asian borrowers. The JP
Morgan Asia High-Yield Credit Index rallied 5.8% in the first
half and 4.4% in the second quarter alone.
"Bond markets have been robust this year and we expect
investors to continue to be attracted to high-yield names,
especially in the non-Chinese sector for diversification
reasons," said Winston Tay, head of debt syndicate, South-East
Asia at the Royal Bank of Scotland.
"Investors will, as always, be discerning on both the
credit and covenant package, but we expect the pipeline for
non-Chinese high yield issuance to remain strong as issuers look
to tap the ample liquidity in the system and to diversify away
from the bank loan market," he said.
The demand also comes from private-banking clients in Asia
seeking high-yielding paper, although Asian institutional
investors tend to ask for higher premiums.
"Despite the good appetite for non-Chinese names, investors
will still ask for yield as some of these are maiden issuers.
Also, I think managing the pipeline is important, as the last
thing we want is an exodus of deals like what we saw in China
property back in Q1 of each year," said Chia at Schroders.
(Reporting by Lianting Tu)