Euromoney, March 2018
Last year was a record for high yield in Asia, and 2018 has started strongly despite volatility. But behind the scenes there are concerns about an unpredictable regulator controlling supply and worsening practices among unfamiliar bookrunners.
For a market that is shattering records, high yield in Asia faces a lot of challenges.
There is the fact that China remains utterly dominant in terms of supply, yet permission for Chinese offshore issuance rests with an understaffed regulator that gives approvals in irksome bursts. There is a steady erosion in covenants. And there is widespread disquiet throughout the industry about some of the underwriting practices that have entered the market.
Yet high-yield issuance in Asia has never looked so good.
According to data prepared for Euromoney by Dealogic, international high-yield issuance from Asia was worth $49.15 billion in 2017, a record. Definitions vary, but all methodologies show a record year: Moody’s showed $34.5 billion of high yield in 2017, up from $11.4 billion in 2016 and dramatically ahead of the previous record of $23.3 billion in 2013.
By January 23, Asia issuance – at $8.03 billion from 22 deals – was up 61% year to date on the same period in 2017, according to Dealogic, although that run has stuttered with subsequent market volatility. Moreover, credits that once paid double digits now pay 5% or 6%. The most admired names in the industry (just 10 issuers account for 37.5% of the $76.7 billion outstanding rated debt as of December 31, according to Moody’s) can dictate remarkably tight terms.
This has been achieved because of a confluence of circumstances on both the supply and demand sides.