In emerging markets’ return to sell dollar debt, Asia leads the charge
The riskier parts of the developing world are again flirting with international debt markets and Asian companies are leading the charge.
Asia’s riskier borrowers are once again selling offshore debt, paving the way for other emerging-market bond sellers amid optimism reopening economies will stoke global growth. While demand for higher quality bonds, including Chinese dollar debt, hit fresh highs last month, junk borrowers are also finding ways to sell. It’s a sign of differentiation among borrowers from the developing world as local Asian investors offer support to leveraged firms in the region, accordingtobn pp a rib as asset management, which is bullish on some Asian markets and offshore China credit.
“In April, we saw Asia’s highyield market returning, whereas we haven’t yet seen that in the Latam, Middle east or Africa complex,” according to Karan Talwar, senior investment specialist for emergingmarket debt at BNP Paribas Asset Management in hong Kong. These borrowers have been more successful because they’re supported by local investor demand, he said. Asia’s junk universe is dominated by Chinese borrowers who have flocked to offshore markets in recent years.
emerging-nation companies and governments have raised more than $292 billion through dollar-denominated bond sales this year, data compiled by Bloomberg show. Issuance all but dried up in March as the threat of the coronavirus and weaker oil prices became clear.
While the amount of money raised from emerging-market dollar bond sales soared to a record for the first five months of a year, buoyed by blowout new issuance early in 2020, the number of sellers dropped to a four-year low, data show. That highlights how creditors are discriminating more between investment-grade and high-yield debt.
Demand for risk
INVESTORS have lapped up a handful of high-yield Chinese notes issued in the past two months. Property developers, which make up the bulk of the nation’s riskier issuance, borrowed a record amount in the first quarter and are poised to return with an offering from Zhenro Properties Group Ltd. effectively re-opened that part of the market in May.
Orders for the $200 million bond surged to about seven times the issuance size and Asian investors made up 85 percent of final order books, according to a person familiar with the matter. Separately, just last week orders for another high-yield developer bond from Fantasia holdings Group Co. reached $1.1 billion for a $300 million with 98 percent of interest from Asian buyers.
The return of european and Latin American issuance has been more hesitant, reflecting the fact that Asian economies hit earlier by the pandemic were able to begin reopening sooner. Latin America is in the throes of its worst outbreaks, especially in nations such as Brazil, where leaders are avoiding strict nationwide lockdowns.
even so, Brazil’s state-run oil producer, Petrobras, sold $3.25 billion of bonds this week. It was the first Brazilian company to sell dollar bonds since before the pandemic. The sale may be a harbinger of more lower-rated companies returning to markets soon, according to Citigroup Global Markets strategists including eric Ollom, Donato Guarino and Ayoti Mittra.
“em new issuance since the Covid crisis has been predominantly IG, except for the odd sovereign and Asian corporate,” they wrote. “We find the market flush with liquidity and clearly looking at the future back-to-work narrative more than the ugly economic data confirming the depths of the contraction.”