Asias high-yield market may
reach new heights in 2013 because bank lending will not be as
accessible. But Asian investors must become more open to
investing in notes with low credit ratings.
Conventional bank lending has by
far been the most popular means of financing for SMEs in Asia
in the last few years because there is so much liquidity in
the market. But the implementation of Basel III in January
2013 could change that.
Panelists at a high-yield
conference co-sponsored by Asifma and Latham & Watkins
predicted that banks may be more reluctant to lend to SMEs
once Basel III is implemented in January 2013, which
means increased interest in the high-yield market.
Between 1993-97 there was a
golden age of high-yield because the banks were under capital
constraint, said Milbanks Anthony Root. But
now Asia is awash in liquidity and bank loans are cheaper and
Although domestic banks are doing
well, they may limit the number of new loans or carry out
less restructuring of existing loans to decrease risky
Root said Asian investors have
been previously reluctant to turn to the high-yield market. The instinct in
Asia culturally is driven by relationship and less by
structure and documentation, he said.
Theres hesitance by Asian CFOs and chairmen to
make themselves beholden to unknown public investors versus
having a friendly relationship with a
While that may change, panelists
agreed that it may be difficult to grow the market without
more investors willing to venture down the
One commented that part of the
popularity of high-yield in the US and Europe is because you
have so many funds and portfolio managers that focus solely
This is one of the big
reasons why US investors are more comfortable with triple-C
paper and more aggressive structures, he added.
The buy-side in Asia has not yet developed this level
Although some panelists said that
even single-B issues were difficult, recent notable
high-yield deals were frequently mentioned. They were
especially interested in emerging markets such as Mongolia;
the single-B rated Trade and Development Bank of Mongolia was
But it may be more difficult for
triple-C and unrated issuers to attract investors.
However Root also predicted that
ratings will go up for Asian issuers because a crucial factor
is the overall improvement of strength in the credit of the
There was always a cap on
the coupons, but as the sovereign ratings go up, issues will
increase, he said.
How Basel III will limit Chinese
bank financing http://www.iflr.com/Article/3113603/Lending/How-Basel-III-will-limit-Chinese-bank-financing.html
China junk bonds pilot scheme will
have limited impact http://www.iflr.com/Article/3035495/Search/Results/China-junk-bonds-pilot-scheme-will-have-limited-impact.html?PageId=201716&Keywords=high-yield&OrderType=1&PageMove=2
high-yield precedent http://www.iflr.com/Article/3081592/Schaefflers-retail-high-yield-precedent.html