Top Singapore lawyer says not time for bond crisis alarm as ‘out-of-cycle defaults’ are yet to be seen

Cracks in Asia’s bond market are not as alarming as headlines suggested because market predictions for “out-of-cycle defaults” remain on the bearish side for now, a top Singapore corporate lawyer said.

The US-China trade war, oil-price swings and commodity cycles have played a part in stoking concerns about defaults among the weakest borrowers this year. Goldman Sachs predicted 3 per cent of Asia’s junk-rated debt will be in default next year, up from 1.7 per cent last month.

“Default rates have been forecast to rise for a while, but to-date there has not been the out-of-cycle defaults predicted,” said David Zemans, Singapore-based Asia managing partner at Milbank LLP. As such, “it is not necessarily time for alarm yet.”

While there is softness in the market due to a host of reasons like trade war, the impact on credit has largely been expected, he said in an email interview with the Post. “The market has not been overwhelmed by a wave of defaults.”

Companies have defaulted on 117 corporate bonds amounting to US$185.6 billion globally this year through December 18, according data provided by S&P Global Ratings. In 2018, there were 82 worth US$131.7 billion. At the peak in 2009 global financial crisis, the tally was 264 defaults worth US$627.7 billion.

“The global economy is not doing too bad, plus the US economy is relatively robust and the easing trade war will help the Chinese economy,” said Frank Zheng, head of international fixed income at China Asset Management Co in Beijing. “Under these conditions, the risk of global high-yield bond defaults is overall manageable.”