Liquidity woes have pushed the number of Asian high-yield companies with weak liquidity, in particular Chinese developers, to record highs according to proprietary indicators ending 30 June 2022, said Moody's Investors Service recently.
At the same time, the plunge in US dollar bond issuance from Chinese developers is reshaping the composition of the Asian high-yield market, the firm noted.
The sharp drop in Asian high-yield issuance reflects a flight to quality driven by the uncertain macroeconomic environment, said Annalisa DiChiara, a Moody's Senior Vice President.
“Rated issuance year-to-date is at an all-time low of just US$1.2 billion, reflecting the absence of Chinese developers, which drove 65%-70% of rated US dollar issuance over the past decade,” she pointed out.
The number of rated Chinese developers has also shrunk 30% over the last year to around 40, and is now similar in size to Moody's rated South and Southeast Asian portfolio, the credit rating agency said.
Still, Chinese developers account for the majority (64%) of the $116 billion of total and unrated bonds maturing or becoming puttable through 2023 for the Asia HY portfolio, according to Moody’s.
In addition, 45% ($52 billion) of the total maturities are USD denominated and the rest of the maturities are generally in local currencies, predominantly RMB, Moody’s observed.
While refunding needs remain large, the US dollar bond market remains largely shut to Asian high-yield companies, pointing towards more defaults, including distressed exchanges, Moody’s added.
"Chinese developers' debt exchanges this year may not be a permanent solution and could present re-defaults if the markets remain closed or interest rates remain prohibitive," DiChiara said.
Moody's it said views some of the debt exchanges as distressed exchanges because the debt-for-debt exchanges extended bond maturities and helped the issuers avoid payment default.
As of June 2022, the number of Asian high-yield companies rated B3 negative (B3N) or lower and those with weak liquidity reached their record worst levels of 33% and 41.7%, respectively, the firm added.