India leads first Asia high-yield dollar bond sales rise in five years

By Ameya Karve and Divya Patil
 

Asia’s high-yield dollar bond sales this year have grown annually for the first time in five years, fueled by Indian financial companies’ rush to access offshore investors.
 

Regional sales of such corporate notes, outside of Japan, touched $5.6 billion so far this year, already surpassing $4.4 billion in all of 2023, according to Bloomberg-compiled data. Indian borrowers have topped the share of sales so far this year, with nearly 41 per cent share.

The annual declines prior to this year’s hike started in 2020 and aligned with four years of China’s property crisis that sent several builders — major contributors to Asia’s junk dollar bond market — into distress, restructuring and liquidation.

The uptick speaks to investors’ confidence in India’s growth and robust consumer demand, while regional rivals, including China, rein in offshore borrowing amid economic uncertainties and rising debt.

“A number of Indian borrowers are ready to tap the high yield offshore bond market, taking advantage of strong investor appetite seen in recent deals,” Bhavik Pandya, head of debt capital markets for Southeast Asia at Bank of America, said.

Indian shadow banks — hemmed in by the central bank’s regulatory push to rein in their ability to borrow domestically  — have been particularly eager to secure offshore financing to lend in one of the world’s fastest-growing major economies.

Three such lenders — Indiabulls Housing Finance Ltd., Shriram Finance Ltd. and Muthoot Finance Ltd. — sold a combined $1.75 billion of bonds this year, making up a large chunk of the total $2.29 billion sold by Indian borrowers. Manappuram Finance Ltd. started marketing its US-currency offering Wednesday, while at least another non-bank firm — IIFL Finance Ltd. — is in the pipe for future issuance.

“There is a fear that if inflation doesn’t ease substantially, the rates could be higher for longer, and strong high-yield issuers are taking advantage of the low spreads to refinance,” said Satyajit Singh, head of fixed income strategy at Emirates NBD Bank PJSC.

Good balance sheets of most Indian shadow lenders and their established presence in the offshore market have made it comparatively easy for them to access the dollar bond market, Singh said.

Annual sales in Asia ex-Japan bottomed out last year from a record $94.4 billion in 2019, according to Bloomberg-compiled data of offerings with minimum size of $100 million. While Asia junk dollar bond sales suffered in recent years, mainly impacted by the China property crisis, US high-yield bond sales rose annually every year in the same period except one.

US corporates sold almost $134 billion of junk bonds so far this year, compared with nearly $194 billion in 2023. Such sales in Europe touched €59.5 billion ($64 billion) this year versus a little over €74 billion last year.

Increased investor risk appetite, healthy liquidity and lower implied cost of refinancing high-yielding bonds have boosted global junk note sales, Pandya said.

Still, the outlook for the rest of 2024 for junk bond sales in Asia is far from clear. Offerings may slow down unless the current bearish trend in US Treasury yields stops, Emirates NBD’s Singh said. “We have already seen some issuers defer their bond sales,” he said.