Five-year refinancing needs drop to lowest level since a Moody’s study in 2017, said the credit rating agency when releasing a study recently.
Rated nonfinancial high-yield (HY) companies in Asia, excluding Japan, have US$135 billion of bonds maturing over the next five years (2024-28), according to the firm.
A pendulum shift in risk appetite stemming from China 's (A1 stable) property downturn is driving investors toward more stable investments, Moody’s added.
In Asia Pacific, HY nonfinancial default rate for 2023 is 4.9%, in line with the 10-year average, Moody’s pointed out.
The forecast corporate default rate reflects slowing global economic growth, an uneven rebound of China's economy, and continued tight monetary policy and high interest rates globally, the firm noted.
“We expect liquidity will remain tight but vary across sectors and countries,” said Moody’s. “Private companies in China, particularly property developers, with high leverage or weak liquidity are more vulnerable to default risks.”
- The decline in refinancing needs to the lowest level since the 2017 study (for 2018-22) reflects a shrinking HY portfolio and drought in new issuer activity.
- The US dollar bond market remains largely shut to Asian HY companies. Rated dollar bond issuance is hovering near its lowest level on record, at just $1.2 billion so far this year.
- Investor risk aversion and rising Fed rates have made dollar bonds relatively expensive. Companies that meet their refinancing needs through domestic channels are choosing to replace maturing US dollar bonds with lower-cost onshore debt.
- Most bonds mature by 2026 as maturity profiles have shortened.
- Bonds maturing in the first three years account for around 90% (or $121 billion) of the five-year total. This is a significant jump from the historical average of 75% since the 2016 study. This in part reflects a growing reliance on onshore bonds, which often have shorter tenors (generally less than three years) compared with US dollar bonds (tenors generally three to five years).
- Shorter maturities mean companies require a sustained level of debt issuance to mitigate liquidity risk.
- Companies rated B2 and lower account for 45% (or $61 billion) of maturities.
- These companies account for a similar proportion of total HY companies versus last year's study.
- But such companies now account for 45% of bonds maturing over the next five years, up from 34%. Companies that have already defaulted, with many undergoing debt restructuring, account for the bulk of these maturities ($47 billion).
- The balance of maturing bonds ($14 billion) are due by the end of 2026, amplifying liquidity pressures for most of those companies as funding channels shrink and lenders remain selective.