High Yield Hunting: Chinese Investors Look to India and Indonesia
Chinese investors are broadening their horizons as the country's high-yield issuers lose some of their appeal.
India and Indonesia are getting much of the attention, with a rush of dollar bond sales providing opportunities to move beyond Chinese property developers — a staple of Asia's high-yield bond market, according to CreditSights Inc.
"Many of the investors we spoke to have a large portfolio concentration in China and wish to diversify, fueled by fears over China’s slower growth, capital flow controls and rising debt levels," Lakshmanan R, a senior analyst at the financial research firm in Singapore, said in an interview.
"On the other hand," he continued, "India and Indonesia are seeing robust growth and manageable inflation, with Moody's recently upgrading its sovereign rating outlook on Indonesia to positive and India remaining the fastest-growing among the large economies globally."
Companies such as Jain Irrigation and coal-mining services contractor Bukit Makmur Mandiri Utama (Buma) are among those to have offered bonds offshore in recent weeks. Asian issuers as a whole have sold more than $6.6 billion high-yield bonds so far this year, the most in the same period since 2013, according to data compiled by Bloomberg.
Lakshmanan reckons that on a broad corporate level, valuations in China are "very tight" and that there are limited investment options beyond property and financials.
"India and Indonesia are offering around 7 percent yield for not-so-bad credit quality, and the new issues have been in myriad sectors, which appears attractive to those investors chasing yields and portfolio diversification," he said.
Chinese real-estate developer Yuzhou Properties, for example, sold its 5NC3 bond at 6% in January, while Jain Irrigation priced its 5NC3 at 7.375% and Buma issued its 2022 offering at 7.75%. Fitch Ratings assigned BB- ratings to Yuzhou and Buma while Jain Irrigation was one notch lower. Another Chinese real-estate developer, Yanlord Land, priced its 5NC3 at 5.875% last month.
"Chinese investors get higher returns from some Southeast and South Asian credits who as debut borrowers have to pay higher new issue premium," said Sandra Chow, another senior analyst at CreditSights. "Chinese property developers tend to be seasoned issuers or familiar names and can get away with tighter pricing."
— With assistance by Lianting Tu