May 14, 2020 / 6:39 AM / in 3 months

Asia's high yield debt market starts to thaw

HONG KONG/SINGAPORE, May 14 (Reuters) - The first high yield debt deal in Asia for nearly two months was underway on Thursday as China’s Zhenro Properties Group looked to raise $200 million in a transaction that bankers predict could prompt more junk bond deals to emerge in the region.

A term sheet seen by Reuters showed Zhenro was selling a 3.8 year fixed deal of $200 million, rated B+ by Fitch with a price of about 8.9%, to pay down some existing debt.

The deal is the first in the high yield sector in Asia since March, according to Refinitiv data, and could pave the way for other high-yield issuers to sell debt in the region, bankers said.

However, the relatively modest deal size and the long gap in activity in Asia's junk credit markets underscore investor caution in the absence of the sort of central bank support seen in Europe and the United States.

Asia high yield debt issuance so far in 2020 has totaled $23.38 billion, down from $74.9 billion during the same time last year, according to Dealogic data.

In the same timeframe, there has been $127.6 billion worth of deals carried out in the U.S., the figures showed. "The sentiment in the market has come back and the secondary trading levels are back to a more respectable level," said one banker with direct knowledge of the deal who could not be named because he wasn't authorised to speak with the media.

"I think investors who are interested in the Chinese property sector are keen to look at it again, we have had some reverse interest as to when the high yield deals could come back."

The rush of U.S corporate debt deals, in both investment grade and high-yield sectors, has been attributed to bond-buying programs from the U.S. Federal Reserve and the European Central Bank which have expanded to include corporate debt.

In the United States, even hard-hit cruise liners have been able to raise billions this month with the latest being Royal Caribbean Cruises' $3.3 billion bond offer on Wednesday.

"First-time high yield issuers coming back into (Asia’s) market will find it tough," said Clifford Lee, head of fixed income at Singapore's DBS Bank.

"If they do come back, I feel that they will come back in the shorter-tenor space ... because they don't want to pay the kind of premium we're seeing now in the market." (Reporting by Scott Murdoch in Hong Kong and Tom Westbrook in Singapore Editing by Shri Navaratnam)

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