(Bloomberg) – China’s assurance of avoiding a widespread credit crunch due to the deadly coronavirus means that the 1.35 trillion dollar bond market dominated by the Asian dollar will prevent any big collapse. But there will be significant pockets of pain, warn market players.
Weaker borrowers linked to commodity prices that have plummeted in recent weeks are a concern, as are industrial or consumer businesses that are not seen by investors as too big to fail. All have been among the worst performers in the Asian unwanted dollar bond market since the start of the year.
“China is the main driver of consumption of raw materials in the world and weak demand could last for some time, which will hurt the region’s oil and coal companies,” said Soo Cheon Lee, chief investment officer. at SC Lowy, a finance company focused on credit. strengthen.
The market as a whole has suffered a few rounds of shocks since the emergence of the coronavirus as a threat in January – first when it spread to China, then again in the past few days, as cases were skyrocketing in other countries.
With China being the world’s largest importer of raw materials, supplier companies have been among the worst performing junk bonds in Asia since the start of the year, according to an ICE BofA index, notably Vedanta Resources Ltd. and Mongolian Mining Corp. has been lacking in the past.
Some consumer borrowers have also suffered, such as car rental companies CAR Inc. and eHi Car Services Ltd. The dollar bonds sold by Wynn Macau Ltd. are also among the underperformers, as the Macau gaming industry is under pressure.
As borrowing costs in the Asian high-yield offshore market remain well below the stressful levels of late 2018 – when fears about the Federal Reserve tightening saw the liquidation of risky assets – another fall viral concerns could sow refinancing concerns.
According to data compiled by Bloomberg, borrowers in Asia-Pacific whose dollar bonds yield at least 15% – defined as underlined – are faced with maturing debt of $ 14.7 billion this year.
“The risk of default certainly increases, especially for small, low-level businesses,” said Manjesh Verma, chief of Asia credit specialists at Citigroup Inc. “We are more concerned about the non-real estate sector in China, which has less state support, ”Verma told me. “The ripple effect of China’s easing measures is seldom seen for borrowers at the bottom of the food chain.”
To contact the reporter on this story: Denise Wee in Hong Kong at [email protected]
To contact the editors responsible for this story: Andrew Monahan at [email protected], Christopher Anstey, Ken McCallum
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