Moody's: Asian high-yield issuance remains robust in Q2 2017; YTD issuance above annual average

Moody's Investors Service says that investor tolerance for lower credit quality and the refinancing needs of issuers continue to drive bond issuance in 2017, with Q2 2017 seeing the highest quarterly amount issued since Q1 2013.

"A total of 25 deals totaling USD11.6 billion closed in Q2 2017 -- compared with 26 totaling USD10 billion in Q1 2017 -- the highest quarterly amount since Q1 2013, with year-to-date issuance of USD21.6 billion approaching the full-year record of USD23.3 billion set in 2013," says Annalisa DiChiara, a Moody's Vice President and Senior Credit Officer.

"Furthermore, year-to-date issuance is already well above annual average issuance of USD14 billion since 2010, and we also believe that refinancing risks remain manageable and, in the absence of exogenous shocks, the market should be able to absorb upcoming maturities," adds DiChiara.

"In addition downgrades moderated considerably in Q2 2017 to 2.79x, approaching the long-term average of 2.41x," adds DiChiara. "Although credit quality showed signs of improvement, around 47% of corporate family ratings were in the single-B category and 13% in the Caa-C range" says DiChiara. "And B3 and below remained elevated at 23 companies or 17.8% of the total".

During Q2 2017, B3-rated bonds accounted for a significant portion of issuance or USD4.6 billion, while China Evergrande Group's (B2 stable) USD3.8 billion accounted for the bulk of that amount.

Furthermore, China-based corporates dominated issuance at 70% of the total, with Indonesia at 13%, India at 12% and Macau at 5%.

Moody's further notes that the number of B3 and below companies have generally been on the rise since 2012, and stood at a 5-year high of 17.8% of our Asian high yield portfolio at 30 June 2017. Such issuers accounted for USD9.8 billion of rated debt, with around US2.3 billion maturing by 30 June 2018.

In total, USD128.6 billion of rated and unrated maturities are scheduled through to 2021, and USD6.7 billion of rated bonds will mature by 30 June 2018.

Meanwhile, Moody's Asian Liquidity Stress Index (Asian LSI) weakened in June, rising to 25.6% from 25.2% in May 2017.

The Asian LSI measures the percentage of high-yield companies with SGL-4 scores as a proportion of high-yield corporate family ratings (CFRs) and decreases when speculative-grade liquidity improves.

The June figure ended six months of continuous improvement, and the reading now remains just above the long-term average of 22.9%, highlighting that weak liquidity is still a concern for many companies in Asia.

Although Moody's has assigned SGL scores to all 129 high-yield rated companies, only 102 of these companies have rated debt outstanding totaling $72.6 billion at 30 June 2017. In addition, the amount of rated debt in June 2017 was at its highest level since December 2010. At end-June, SGL-1 and SGL-2 companies together accounted for 48.5% of the rated debt outstanding.

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