High-yield bonds back in style

High-yield bonds back in style

The high-yield bond market, consisting of non-investment-grade bonds offering above-market returns to compensate for higher investment risk, has begun to pick up again after nearly drying up in the first half due to Covid-19 impact, says Asia Plus Securities (ASP).

"High-yield bond issuance dropped significantly in April, and many issuers could not completely sell their bonds, while corporate bonds rated at A- and above did not experience any impact," said Yodrudee Santatikul, executive vice-president for capital markets at ASP.

Long-term corporate bond issuance fell by 41.6% year-on-year in the first half to 278.5 billion baht, according to the securities firm.

New debenture issuance totalled 30.9 billion baht in March and 49 billion baht in April. But if debentures issued by Siam Cement Plc and PTT Plc worth a respective 25 billion and 15 billion baht in April were excluded, the value would be 9 billion baht.

May's debenture issuance totalled 43.4 billion baht, and the figure rose to 72 billion baht in June.

According to the portion of issuance size to total offering size in March (when the number of coronavirus infections in Thailand started picking up), bonds with an AA- rating or higher were able to sell 99.1% of the total offering size.

Bonds rated A- to A+ were 92% sold, and bonds rated BBB- to BBB+ were 97.9% sold.

For high-yield bonds, the issuance size was 57.7% of total offering size.

For bonds rated BBB- to BBB+, the sold-out portion fell to 41.4% in April before picking up to 93% in May.

The situation for this bond segment was most troubled in April, with Ananda Development Plc and Charn Issara Development Plc seeing 71% unsold newly issued debentures from total offering sizes of 4 billion and 1 billion baht, respectively.

The unsold portion for Noble Development Plc was 68% of the offering size worth 1.5 billion baht, and for Gunkul Engineering Plc the unsold portion was 52% of the offering size worth 2.8 billion baht.

The selling portion for high-yield bonds fell to 37.6% in April but picked up to 87.7% in May, and the bonds were fully subscribed in June.

"High-yield bonds had been inert for three months from restrained demand seeking higher returns from high-net-worth investors," Mrs Yodrudee said.

Demand for bonds issued by the property sector received better feedback because the property business has not been sluggish across the board, particularly the residential housing and low-rise property segments, she said.

To help curb investment risk for high-net-worth clients, firms should issue bonds with property or other assets as collateral, Mrs Yodrudee said.

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