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Companies in Asia are rushing to raise funds by issuing bonds before the U.S. Federal Reserve hikes interest rates again.
But many investors simply aren't buying.
Asset managers say they've seen a number of companies fail to close dollar-denominated bond deals this year. That's especially true for companies that aren't investment grade — meaning they're judged to be at greater risk of a default — experts said.
Thomson Reuters data this week painted a very different picture from the boom seen last year: The Asian high-yield bond market shrank by 15 percent to $12.9 billion.
Year-to-date, the issuance of dollar bonds in Asia is about 10 percent lower than last year because of the increased volatility in U.S. Treasurys, said Desmond Soon, head of investment management for Asia ex-Japan at Western Asset Management. Treasury volatility has spiked this year, in tandem with the wild trading seen in stocks.
Bigger, more established companies, meanwhile, have so far been able to afford to hold back on issuing debt.
"With a solid portion of market actors expecting U.S. rates to edge higher, it seems a rational decision for CFOs to speed up refunding and front-load their capital market activity," said Luc Froehlich, head of investment directing at the Asian fixed income unit for Fidelity International.
Chinese issuers, for instance, have been facing challenges "in terms of rising interest rates as the (People's Bank of China) has been moving in lock step with the U.S. Fed," he added.
For many years, the Federal Reserve has held interest rates near zero, but many expect rates to be raised as many as four times this year. Given expectations of higher rates coming, investors are becoming averse to investing in long-term loans.
A number of first-time high-yield bond issuers from India to Indonesia has been unable to get deals done over the past two months, said Dhiraj Bajaj, head of Asia fixed income at private bank Lombard Odier.
Simultaneously, he added, debt deals have gotten smaller.
Even deals offering higher interest rates have proven insufficient to attract investors, said Froehlich.
"The reality is that capital flows into Asian bonds have moderated recently. Therefore, there is naturally less pressure from money managers to put money at work, and they can afford to wait, pass on a few deals and monitor whether and where their end-investors might re-allocate their cash," he said.
Just last year, Asia bond markets were seeing a record boom with a string of jumbo deals. Companies in Asia Pacific issued about $500 billion worth of dollar-denominated bonds last year, according to data from Dealogic.
New deals are coming with higher rates to sweeten the offer for investors, market-watchers said.
Compared with last year, high yield issuers have been paying additional yields of up to 1 percent or more, Bajaj said.
But Froehlich warned that could lead to temporary "credit spread bloating" — a situation where companies are forced to offer increasingly higher yields simply to entice investors.
China has accounted for more than two thirds of total new Asian dollar-denominated bonds this year, Froehlich said.
While some companies are raising yields to attract buyers, others are selling shorter duration debt, according to Bajaj.
That's especially true in China, he said, where many companies are issuing more three-year bonds, as opposed to the usual five-years.