Several different companies in Asia issued high-yield bonds in the first week of 2014, following the previous year’s boom in the market.
High-yield bonds, which are often referred to as junk-bonds, are those that are rated below investment-grade.
Two of China’s largest property developers, Guangzhou R&F Properties Co. (HKSE: 2777.HK) and Kaisa Group Holdings Ltd. (HKSE: 1638.HK), became the first to sell high-yield bonds in 2014. These deals are expected to raise a combined total of US$700 million, said analysts.
According to data provider Dealogic, the issuance of junk bonds in the Asia Pacific region excluding Japan hit a new record of US$33.3 billion in 2013.
But the landscape is now different. A demand for higher yields by investors drove the market last year, as central banks kept interest rates low. This year, investors seem less willing to take on risk because of a rise in global interest rates following the U.S. Federal Reserve’s scaling back of its stimulus program.
High-yield bond issuance in 2014 may instead be driven by a lack of liquidity in Asia. As banks provide fewer loans in an effort to meet strict capital requirements, companies will need to pay more to raise funds.
“I would say, the start of 2014 looks very different from 2013,” with issuance reflecting borrowers’ need to access cash more than investors’ appetite for debt,” said Viktor Hjort, the head of Asia Fixed Income research at Morgan Stanley.