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Risks are manageable for China's high-yield bond issuers
By Moody's Investors Service |
November 20, 2012, Tuesday
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Print Edition
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THE level of refinancing risk for Chinese high-yield corporate issuers is manageable over the next two years despite some deterioration in the sector's liquidity profile.
While such deterioration is no surprise - in light of the challenging nature of the operating environment and economic slowdown - there are factors underpinning their refunding resilience.
An increased variety of funding channels are now available to issuers for refinancing maturing debt, including access to a liquid onshore financial system, equity-raisings from strategic investors, asset disposals, and ongoing access to the offshore US dollar bond market, particularly for property developers.
Onshore fund-raising options are becoming more diverse and more readily available for supporting high-yield issuers. In the first nine months of 2012, social financing rose 19.6 percent year-on-year to 11.7 trillion yuan (US$1.88 trillion). Of the total, bond financing rose 85 percent year-on-year to 1.6 trillion yuan and bank lending rose 18.3 percent year-on-year to 6.7 trillion yuan.
Recently, three companies we rated have successfully raised domestic capital to repay maturing offshore bonds. Such a trend is in line with the government's policy to develop the domestic debt capital market.
While the current rise of bond issuance was mainly attributed to state-owned enterprises, we expect it to provide more opportunities to the private sector as the bond market continues to grow.
In addition to bank funding, alternative funding sources are available to property developers, including selling property projects or equity stakes to other developers or investors.
Offshore market
An active offshore US dollar bond market has helped seven high-yield property developers raise a total of US$3.4 billion bonds during July-November 2012, up from US$1.1 billion in the first half.
The success of these fund-raising activities has helped to further strengthen their track records in accessing the offshore debt capital market; a positive credit for the sector. Looking ahead, more Chinese developers will take the opportunity to issue offshore debt in the near term, given favorable bond market sentiment.
Offshore debt maturities to 2014 remain at a manageable level. Relatively low levels of offshore bonds will mature from now to 2014. A total of US$1.4 billion in offshore bonds for rated Chinese high-yield corporates will mature in 2013, increasing to US$5.5 billion in 2014. The required refunding looks manageable when compared with annual Asian high-yield bond issuance of over US$13 billion during 2010-2011.
About 62 percent of the Chinese high-yield bonds maturing by end-2014 belong to the property development sector. More than 90 percent of these developers have demonstrated ongoing access to the offshore bond market in the last few years.
The authors, Alan Gao, Franco Leung, Stephen Tang and Gary Lau, are analysts of Moody's Investors Service.
While such deterioration is no surprise - in light of the challenging nature of the operating environment and economic slowdown - there are factors underpinning their refunding resilience.
An increased variety of funding channels are now available to issuers for refinancing maturing debt, including access to a liquid onshore financial system, equity-raisings from strategic investors, asset disposals, and ongoing access to the offshore US dollar bond market, particularly for property developers.
Onshore fund-raising options are becoming more diverse and more readily available for supporting high-yield issuers. In the first nine months of 2012, social financing rose 19.6 percent year-on-year to 11.7 trillion yuan (US$1.88 trillion). Of the total, bond financing rose 85 percent year-on-year to 1.6 trillion yuan and bank lending rose 18.3 percent year-on-year to 6.7 trillion yuan.
Recently, three companies we rated have successfully raised domestic capital to repay maturing offshore bonds. Such a trend is in line with the government's policy to develop the domestic debt capital market.
While the current rise of bond issuance was mainly attributed to state-owned enterprises, we expect it to provide more opportunities to the private sector as the bond market continues to grow.
In addition to bank funding, alternative funding sources are available to property developers, including selling property projects or equity stakes to other developers or investors.
Offshore market
An active offshore US dollar bond market has helped seven high-yield property developers raise a total of US$3.4 billion bonds during July-November 2012, up from US$1.1 billion in the first half.
The success of these fund-raising activities has helped to further strengthen their track records in accessing the offshore debt capital market; a positive credit for the sector. Looking ahead, more Chinese developers will take the opportunity to issue offshore debt in the near term, given favorable bond market sentiment.
Offshore debt maturities to 2014 remain at a manageable level. Relatively low levels of offshore bonds will mature from now to 2014. A total of US$1.4 billion in offshore bonds for rated Chinese high-yield corporates will mature in 2013, increasing to US$5.5 billion in 2014. The required refunding looks manageable when compared with annual Asian high-yield bond issuance of over US$13 billion during 2010-2011.
About 62 percent of the Chinese high-yield bonds maturing by end-2014 belong to the property development sector. More than 90 percent of these developers have demonstrated ongoing access to the offshore bond market in the last few years.
The authors, Alan Gao, Franco Leung, Stephen Tang and Gary Lau, are analysts of Moody's Investors Service.
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