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Asian high-yield debt sales plunge on China property firms

Here's where sovereign wealth funds are moving their money to
Getty Images
Here's where sovereign wealth funds are moving their money to

Bond sales by Asian companies with patchy credit history plummeted in the September quarter. Blame Chinese property developers.

Asian high-yield issuance stood at $800 million in the three months through September, down 70 percent from the previous three months and the lowest quarterly figure since 2012, according to Moody's Investors Service.

High-yield issuers—companies whose credit rating is below the minimum investment grade threshold most pension funds and insurance companies follow—sold $8 billion worth of bonds between January and September, down 40 percent from the same period last year.

According to Brian Grieser, a senior analyst at Moody's, the sharp fall could be attributed to Chinese property companies being less active than usual.

Offshore issuance by Chinese property developers totaled just $6 billion for January-September, compared with the $9.6 billion raised in the same period in 2014.

Companies have fewer bonds that are maturing soon so there was less urgency to refinance debt. Alternative domestic financing options have also become available to Chinese property firms.

In a less assuring sign, investor confidence in property developers wavered after the default of Kaisa Group Holdings earlier this year, Griser said.

"The slowing growth in China's economy and the potential for an interest-rate increase by the Federal Reserve are also weighing on demand for Asian high yield bonds," Grieser said.

China's economy is under the cosh. China's gross domestic product release last week showed the world's second largest economy grew by 6.9 percent in the three months through September, the slowest pace since 2009.

Another gauge of consumer sentiment slumped to a record low this week.

Concerns over the health of the Chinese economy have spilled from Chile to Korea, sparking a sharp sell-off in the price of commodities that Chinese factories traditionally consume in hefty amounts, as well as the currencies of the countries that benefit from selling raw materials to China.

Beijing has taken a series of steps to get the economy out of its funk.

China's central bank cut interest rates for the sixth time since November on Friday. The People's Bank of China (PBOC) lowered the one-year benchmark bank lending rate by 25 basis points to 4.35 percent, effective from Oct. 24. The one-year benchmark deposit rate was also lowered by 25 basis points to 1.50 percent.

Moody's also noted that the trailing 12-month high-yield default rate for Asian non-financial companies stood at 3.6 percent at end-July 2015; a slight fall from the 3.9 percent at end-2014.

In the seven months between January and July 2015, three issuers defaulted: two Chinese firms and one Indonesian company.