Junk bond sales in Asia outside of Japan will climb in 2013 as companies take advantage of record low borrowing costs, according to Australia & New Zealand Banking Group Ltd. (ANZ) Debt risk dropped to the least in 19 months.
Offerings from high-yield issuers in the region increased 4.6 percent to a record $14.8 billion this year while U.S. dollar-denominated sales from similarly-rated companies globally surged 44 percent to $351.6 billion, according to data compiled by Bloomberg. Junk yields in Asia fell to 5.97 percent yesterday, the least in data going back to 2004, HSBC Holdings Plc indexes show.
“Yields have compressed,” said Owen Gallimore, a Singapore-based credit trading desk analyst at ANZ. “I expect a pick-up in high-yield issuance from 2012 levels.”
Citic Pacific Ltd. (267), a Hong Kong-based maker of steel used in auto components that’s rated Ba1 by Moody’s Investors Service, sold the most high-yield bonds from Asia denominated in either dollars, euro or yen this year, issuing $2.1 billion of securities, according to data compiled by Bloomberg. The 41 sales from 33 companies since Dec. 31 compares with 31 sales from 29 borrowers in 2011, the data show.
By comparison, investment-grade bond sales in the region excluding Japan denominated in so-called G3 currencies have more than doubled this year to a record $93.7 billion.
Investment-grade debt is rated at least Baa3 by Moody’s or BBB- by S&P. Bonds with lower ratings are typically known as junk, speculative-grade, or high-yield.
The most recent sale of junk debt in Asia was from a unit of Zoomlion Heavy Industry Science and Technology Co., which issued $600 million of 6.125 percent notes last week, Bloomberg data show. The unit of the Chinese maker of cranes and drilling equipment said Dec. 14 it had received bondholder permission to sell more debt.
The cost of insuring corporate and sovereign bonds in Asia from non-payment fell to a 19-month low. The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan dropped 1 basis point to 108 basis points as of 8:44 a.m. in Hong Kong, set for its lowest close since May 2011, Credit Agricole SA and CMA prices show.
Junk sales may make up about 20 percent to 25 percent of total dollar bond issuance in the region next year, from 15 percent this year, ANZ’s Gallimore said. The Melbourne-based bank expects offerings to total $105 billion in 2013, he said.
The Markit iTraxx Australia index declined 1 basis point to 119.5 as of 11:44 a.m in Sydney, Credit Agricole prices show. That’s set for its lowest since August last year, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.
The Markit iTraxx Japan index also fell 1 basis point to 156 basis points as of 9:34 a.m. in Tokyo, Citigroup Inc. prices show. The gauge is headed for its least in more than eight months, CMA prices show.
Credit-default swap indexes are benchmarks for insuring bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.
The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.
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