Sub-investment-grade firms have joined the queue to offer high-yield debt paper
Asia's 'high-yield' paper looks likely to keep the bond fires burning this year, with sub-investment-grade companies reported to be joining a queue of issuers waiting to come to global capital markets to fund their growth.
That's good news for bond investors who have developed a healthy appetite for portfolio-enhancing 8 to 9 per cent coupon interest payments and can expect more to come.
It's also good news for borrowers whose access to bank credit may be priced prohibitively or shut (as in the case of mainland companies operating in overheated sectors of the economy).
And finally, it's good news for the investment banks that bring sub-investment-grade risks to the market and will be hoping that the higher fees earned from such deals compensate for what could be a drop in big blue-chip issues.
Bankers are quick to point out they work considerably hard for their crust, doing due diligence on higher-risk credits, obtaining legal opinions and preparing the offer with often complex covenants designed to ensure its acceptance by investors.
But, while fees on regulation blue-chip bond issues have been shaved by intense competition from distributors to about 37 basis points, fees on a high-yield issue may be six times higher - witness the 225 basis points collected by Morgan Stanley for playing solo bookrunner on Asia Aluminum's US$450 million issue, topped by a fee of 250 basis points for its sole underwriting of Sino-Forest's US$300 million issue.