Synopses & Reviews
Starting with a general description and definition of the product, and where it sits in the corporate capital structure, the book looks at the suitability of high yield bonds for family-owned growth enterprises through a new and expanded discussion as to why Asian issuers should or should not issue high yield bonds and to what extent high yield bonds can supplement or even replace traditional bank lending. This includes a look at capital markets alternatives for family owned companies, the search for an optimal capital structure, the relevance of optimal debt and capital structure theories, key aspects driving financing decisions and their objectives against this backdrop, from a practical and theoretical point of view. Against these parameters the suitability of high yield bonds is being established and, finally, compared with other financial instruments.
As far as the history ofand development of the product are concerned high yield in the US and Europe is thoroughly looke at before analyzing the relative short history of the sector in this region. Within this context the guide will also assess the key advantages of high yield bonds as opposed to bank debt funding -- incurrence rather than maintenance covenants, tenor, bullet repayment, investor diversification -- and as opposed to equity and equity-linked funding -- non-dilutive, cheaper and less volatile.
This is followed by a comprehensive anatomy' of the high yield bond market in Asia, looking at issuer countries and industries, ratings and size distributions. This would include a comprehensive look at the diversification of the high-yield issuer universe, including the recent non-property issuance out of China as well as examples from "new" high yield geographies, such as Japan and Mongolia (in which the author transacted benchmark offerings).
Any anatomy of Asian high yield would not be complete without a thorough technical analysis of high yield bond structures commonly employed in Asian transactions and their key concepts. The discussions of the respective covenants and security packages will be embedded into revised and new chapters on the key building blocks of high yield credit analysis, including business risk, financial risk, management / ownership risks and covenant analysis. Asian high yield covenant packages which vary immensely across the region, lead into a thorough analysis of high yield bond risks and fundamentals, including transfer of cash or other forms of value from a restricted group, risky investments in assets, increase in leverage, subordination/dilution of bondholders claims and abrupt changes in governance or control. Based on real deal examples these covenants packages will be analyzed versus the US and European models and assessed for comparative strengths and weaknesses. Special attention will also be given to issues such as to corporate governance, the business model, business strategies, quality of earnings and cash flows and auditors.
In many cases, the senior financial executive of the company in question will be interviewed to provide insight on the company's rationale for issuing high yield bonds, their view on the strengths of the products, their reservations about it, their assessment of high yield versus other funding products and the place that high yield bond issues will have in their future funding plans. The author will also offer technical analysis on why each company employed its particular structure and an assessment of its strengths and weaknesses.
This is followed by a thorough analysis of the buyside, including interviews with leading institutional investors in Asian high yield, principally real money asset managers and hedge funds. They will update the development of the investor base post 2008, the reasons behind the decline of Asian high yield and its resurgence, culminating in an analysis of the migration from fast money to real money and private wealth. The chapter will demonstrate high yield investors' priorities, dealing with their preferences in terms of countries and industries, their views on which recent structures they have found more or less attractive -- and why -- and how they expect the market to evolve in Asia.
Another new chapter will be on high yield bond restructuring. We will look at Asian high yield bonds from their recovery value, compare these with the US, and analysis how the rating agencies are looking at "Loss Given Default" scenarios. Various liability management options are open to issuers to avoid default or deal with default scenarios and the book will assess all these, together with key objectives issuers and investors may associate with them, before presenting case studies of debt restructuring propositions that failed and succeeded (again, the author transacted some high profile deals of this nature in 2009/2010).
Another new chapter of interest is high yield in the new "Dim Sum" market. The guide will assess the genesis of this sector, to what extent high yield structures can be applied and which formats of high yield and covenant packages have been placed with investors.The Asian high yield private placement market shut down in 2008/2009 but resurfaced on the back of a public bond market recovery to offer to a broad spectrum of issuers fast, discreet and, in many cases, vital funding solutions. We will describe the issuers that drive this market, ranging from credits with a challenging history in Indonesia to real estate start-ups in China, and look at how these deals were structured to attract equity return-orientated hedge fund and proprietary desk investors.
Starting with a general description and definition of the product, and where it sits in the corporate capital structure, the book looks at the suitability of high yield bonds for family-owned growth enterprises through a new and expanded discussion as to why Asian issuers should or should not issue high yield bonds and to what extent high yield bonds can supplement or even replace traditional bank lending. This includes a look at capital markets alternatives for family owned companies, the search for an optimal capital structure, the relevance of optimal debt and capital structure theories, key aspects driving financing decisions and their objectives against this backdrop, from a practical and theoretical point of view. Against these parameters the suitability of high yield bonds is being established and, finally, compared with other financial instruments.
As far as the history ofand development of the product are concerned high yield in the US and Europe is thoroughly looke at before analyzing the relative short history of the sector in this region. Within this context the guide will also assess the key advantages of high yield bonds as opposed to bank debt funding -- incurrence rather than maintenance covenants, tenor, bullet repayment, investor diversification -- and as opposed to equity and equity-linked funding -- non-dilutive, cheaper and less volatile.
This is followed by a comprehensive anatomy' of the high yield bond market in Asia, looking at issuer countries and industries, ratings and size distributions. This would include a comprehensive look at the diversification of the high-yield issuer universe, including the recent non-property issuance out of China as well as examples from "new" high yield geographies, such as Japan and Mongolia (in which the author transacted benchmark offerings).
Any anatomy of Asian high yield would not be complete without a thorough technical analysis of high yield bond structures commonly employed in Asian transactions and their key concepts. The discussions of the respective covenants and security packages will be embedded into revised and new chapters on the key building blocks of high yield credit analysis, including business risk, financial risk, management / ownership risks and covenant analysis. Asian high yield covenant packages which vary immensely across the region, lead into a thorough analysis of high yield bond risks and fundamentals, including transfer of cash or other forms of value from a restricted group, risky investments in assets, increase in leverage, subordination/dilution of bondholders claims and abrupt changes in governance or control. Based on real deal examples these covenants packages will be analyzed versus the US and European models and assessed for comparative strengths and weaknesses. Special attention will also be given to issues such as to corporate governance, the business model, business strategies, quality of earnings and cash flows and auditors.
In many cases, the senior financial executive of the company in question will be interviewed to provide insight on the company's rationale for issuing high yield bonds, their view on the strengths of the products, their reservations about it, their assessment of high yield versus other funding products and the place that high yield bond issues will have in their future funding plans. The author will also offer technical analysis on why each company employed its particular structure and an assessment of its strengths and weaknesses.
This is followed by a thorough analysis of the buyside, including interviews with leading institutional investors in Asian high yield, principally real money asset managers and hedge funds. They will update the development of the investor base post 2008, the reasons behind the decline of Asian high yield and its resurgence, culminating in an analysis of the migration from fast money to real money and private wealth. The chapter will demonstrate high yield investors' priorities, dealing with their preferences in terms of countries and industries, their views on which recent structures they have found more or less attractive -- and why -- and how they expect the market to evolve in Asia.
Another new chapter will be on high yield bond restructuring. We will look at Asian high yield bonds from their recovery value, compare these with the US, and analysis how the rating agencies are looking at "Loss Given Default" scenarios. Various liability management options are open to issuers to avoid default or deal with default scenarios and the book will assess all these, together with key objectives issuers and investors may associate with them, before presenting case studies of debt restructuring propositions that failed and succeeded (again, the author transacted some high profile deals of this nature in 2009/2010).
Another new chapter of interest is high yield in the new "Dim Sum" market. The guide will assess the genesis of this sector, to what extent high yield structures can be applied and which formats of high yield and covenant packages have been placed with investors.The Asian high yield private placement market shut down in 2008/2009 but resurfaced on the back of a public bond market recovery to offer to a broad spectrum of issuers fast, discreet and, in many cases, vital funding solutions. We will describe the issuers that drive this market, ranging from credits with a challenging history in Indonesia to real estate start-ups in China, and look at how these deals were structured to attract equity return-orientated hedge fund and proprietary desk investors.
Synopsis
An up-to-date, comprehensive analysis of the high-yield bond market in AsiaBeginning with a general definition of high-yield bond products and where they reside within the corporate capital structure, this newly updated guide looks at the development of high-yield bonds in the United States and Europe before analysing this sector in Asia. It covers issuer countries and industries, ratings, and size distributions, and also covers the diversification of the high-yield issuer universe. It includes a thorough technical analysis of high-yield bond structures commonly employed in Asian transactions, including discussion of the respective covenants and security packages that vary widely across the region. Chapters and sections new to this edition cover such subjects as high-yield bond restructuring, the new high-yield "Dim Sum" market, and the high-yield placement market shutdown of 2008 – 2009. Finally, the book looks at the new characteristics of Asian economies for indicators on how the high-yield market will develop there are the near future.
- Offers an extremely detailed analysis of Asia's high-yield bond market
- Features new and updated material, including new coverage of the key differences between Asian structures and United States structures
- Ideal for CFOs of companies contemplating high-yield issuance, as well as investment bankers, bank credit analysts, portfolio managers, and institutional investors
Synopsis
With interest rates hovering near zero in Europe, the U.S. and Japan, and veritable seas of excess liquidity sloshing around corporate coffers, the appetite for debt among institutional investors is greater than it has been in many years. And nowhere is that more apparent than in Asia's high yield debt market. As of mid 2013, Asian high-yield issuances had surpassed those for all of 2010, with deals in Chinese debt capital markets alone, totaling a whopping U.S.$129.7 billion.
Yet, even with what could be termed a "high yield feeding frenzy," there remains a shortage of authoritative guides for investors looking to take advantage of the vast opportunities available in the Asian debt markets. Thoroughly updated, revised and expanded to reflect those changes, A Guide to Asian High Yield Bonds, Second Edition once again fills the void in the literature on the subject. Written in author Florian Schmidt's trademark journalistic style combining historical perspective with expert analysis, it offers a timely, fine grained look at Asia's high yield debt market.
Mr. Schmidt begins by providing a general definition of high yield bond products and where they reside within the corporate capital structure. He explores the development of high-yield bond markets in the U.S. and Europe and considers how they differ from Asia's market.
He then cuts to the chase with detailed analyses of issuer countries and industries, ratings, and size distributions. He explores the substantial diversification of the issuer universe in Asia, providing a thorough technical analysis of high-yield bond structures commonly employed in Asian transactions, while detailing respective covenants and security packages and how they vary across the region. Finally, he takes a close look at contemporary Asian economies, highlighting emerging trends in the high-yield debt market and offering uniquely well-informed opinions on how they will likely play out over the next several years.
New to this edition is up-to-the minute coverage of, among other topics, the Asian high yield bond restructuring, the emergence of the high yield "Dim Sum" market, and the inside story of the high-yield placement market shutdown of 2008/2009. Also new is a substantially expanded discussion of the major differences between Asian debt structures and those in the U.S., along with a more thorough analysis of the suitability of high yield bonds versus other instrumentsespecially bank loansfrom the perspective of an Asian family-owned enterprise.
A Guide to Asian High Yield Bonds, Second Edition is an indispensable resource for CFOs contemplating high yield issuance, as well as investment bankers, bank credit analysts, portfolio managers, and institutional investors.
Synopsis
Praise for
A Guide to Asian High Yield Bonds"This book is a winner because it covers an area of Asian finance which deserves this comprehensive study by a professional in the industry. The good news is that Florian Schmidt writes with an easy style so that this complex subject is easily digested. I particularly liked the historic view and the specific cases which bring the subject to life. I was particularly delighted that Florian starts with the Asian Pulp and Paper disaster which we all remember and represented somewhat of a watershed for high yield fixed income markets in Asia. Other interesting and relevant cases are covered which gives the reader an idea of the lessons that can be learned from various crises. The book looks at the risk/reward balance required for successful bond investing. It also covers macro developments that impact the high yield bond market such as inadequate foreign currency reserves that led to the 199798 Asian crisis. Most interesting is the section on family enterprises in Asia and what that means for assessing the market and assessment of risk. Probably the most interesting parts of the book discuss requirements and characteristics of high yield bonds in specific sectors: TMT (technology, media and telecom), real estate, metal and mining. In each of those sections, I loved the case studies and particularly the interviews with key industry executives. Another section deals with the secondary markets for high yield bonds: characteristics of the buyers, regulations, trading, value analysis, hedging, etc. Finally, requirements of structuring high yield bonds is not only useful for practitioners but for anyone who wants to understand how such bonds originate. It's a useful and interesting book not only for those interested in high yield bonds but for any investor who wants to understand investment markets in Asia."
Mark Mobius, Executive Chairman, Templeton Emerging Markets Group
"This is the right time for a book on Asian high yield. In many respects, the Asian high yield story is the Asian story. All the big themes in Asian marketsemerging economies, dynamic issuers, fast-growing companies, hot cash inflows, weak governance, high leverage and even higher riskconverge in the high yield space. Schmidt captures all of these themes with a journalist's eye and a banker's insight. The book is as entertaining for the observer of Asian markets as it is informative for the professional working in them."
Nachum Kaplan, Editor in Chief, IFR Asia
"The Asian credit market, and high yield in particular, is growing rapidly and has emerged as a viable asset class for investors worldwide. There is, however, a shortage of quality investment literature that focuses on the Asian credit market and that stands alongside other well-known investment texts. A Guide to Asian High Yield Bonds fills this void. Despite its focus on the high yield asset class, the book is wide-ranging and covers each topic in detail sufficient to both educate the reader and provide value-added knowledge. The book is relevant to both the novice and the more seasoned investor."
Richard Brown, Head of Credit Research, Asia, Schroders
About the Author
FLORIAN H. A. SCHMIDT is Managing Director and Head of Debt Capital Markets, Asia, with ING Wholesale Banking, based in Singapore. He has been professionally involved in Asia's debt capital markets for more than twenty years. During that period, he has originated and executed a large number of bond issues across Asia, including several landmark high yield bond offerings. Among these was the Mongolian Mining Corp.'s U.S.$600MM benchmark, the largest ever private sector bond from Mongolia and the first 144a issue from the country (named "Best High Yield Bond 2012" by Asiamoney); Access' US$420MM senior notes, due 2018 "Japan Deal of the Year and Most Innovative Deal 2011" by FinanceAsia; Indika Inti Energi's debut US$250MM senior notes due 2012, (named "Best High Yield Bond 2007" by FinanceAsia); and China Oriental's inaugural US$550MM senior notes, due 2017. Mr. Schmidt was also involved in some prominent Asian high yield bond restructurings, including Davomas and Titan Petrochemicals.
Table of Contents
Preface xi
Acknowledgments xvii
CHAPTER 1 Why High Yield’s Time Has Come in Asia 1
1.1. The Asia Pulp & Paper (APP) Legacy 1
1.2. Necessary Corporate Developments Benefiting Asian High Yield 4
1.3. Necessary Macro Developments Benefiting Asian High Yield 8
1.4. Asia’s Corporate Landscape of Family Enterprises 12
1.5. Traditional Generic Business Strategies for Family Enterprises 12
1.6. A Theoretical Approach to Debt versus Equity Funding 15
1.7. The Factor “Growth” Makes All the Difference 17
1.8. An Asian Growth Market: China’s Real Estate Sector 19
1.9. Suitability of High Yield Bonds for Family Enterprises 21
1.10. A Wall of Liquidity 27
Notes 31
CHAPTER 2 An Overview of the High Yield Bond Market 33
2.1. The Genesis 33
2.2. The World’s Largest High Yield Bond Market 36
2.3. Europe’s Growing High Yield Bond Market 42
2.4. “True” High Yield Arrives in Asia 50
2.5. The Asian High Yield Renaissance 57
2.6. Through and Beyond the Subprime Crisis 71
2.7. The Asian High Yield Market Comes of Age 80
2.8. More Tests of Resilience 84
2.9. Outlook—Disintermediation of Bank Lending 97
Notes 98
CHAPTER 3 Asian High Yield Issuers 101
3.1. What’s in a Name? 101
3.2. The Technology, Media, and Telecoms Sector 102
3.3. The PRC Real Estate Sector 119
3.4. The Metals and Mining Sector 151
3.5. Highly Concentrated New Issue Universe 190
3.6. Issuer Interviews 192
3.7. Australian Corporates Enter the High Yield Market 201
Notes 208
CHAPTER 4 The Buy-Side and Secondary Market for Asian High Yield 211
4.1. The Age of Liquidity 211
4.2. The New Fast Money Reality in Asia 216
4.3. “Real Money” Institutional Investors 218
4.4. The Regional Private Wealth Management Bid 224
4.5. Regulation S versus 144A 227
4.6. Why Going Down the Credit Curve? 235
4.7. Investors’ Approach toward High Yield 241
4.8. Limitations of Acceptance 250
4.9. Trading Asian High Yield 252
4.10. Investors in the Future, for the Future 259
Notes 275
CHAPTER 5 Structuring and Transacting High Yield Bonds 277
5.1. Changes in the Corporate Capital Structure 277
5.2. Structuring High Yield Bonds 282
5.3. Disclosure for High Yield Bonds 300
5.4. Marketing, Pricing, and Distributing High Yield Bonds 308
5.5. Credit Ratings and the Ratings Advisory Process 325
Notes 339
CHAPTER 6 Asian High Yield Bond Covenants Offer Superior Investor Protection 341
Jeannie-Marie Noyce, Alexander Dill, and Laura Acres
6.1. Key Concepts in Assessing Covenant Structures 343
6.2. Structural Protections against Key Risks Follow a Common Pattern Globally 348
6.3. The Standard Asian High Yield Structure 349
Note 363
CHAPTER 7 High Yield Bonds in Distress—Workout and Recovery 367
7.1. Corporate Governance Issues in China 367
7.2. The Asia Aluminum Case 369
7.3. Lessons from the Asia Aluminum Case 373
7.4. Capital Structure and the Lender—Noteholder Relationship 376
7.5. The Meaning of Structural Subordination 378
7.6. Distressed Exchange for Titan Petrochemicals 381
7.7. The Red Dragon/Central Proteinaprima Case 383
7.8. The Davomas Case 388
7.9. Default Rates in Asia’s High Yield Space Remain Low 391
7.10. Conclusion 393
Notes 396
CHAPTER 8 The Rise and Fall of the Asian High Yield Private Placement Market 399
8.1. Key Market Characteristics 399
8.2. Private Placement Structures 401
8.3. Supply Side Attractions 402
8.4. The Private Placement Issuance Process 407
8.5. Investors’ Motivations 409
8.6. The Collapse of Asia’s High Yield Private Placement Market 412
8.7. The Missing Piece in Asia’s Credit Culture? 413
Notes 414
CHAPTER 9 High Yield Funding in Renminbi 415
9.1. An Asian Currency Corporate Bond Market—At Last? 415
9.2. The Anatomy of the CNH Market 416
9.3. What Are the Benefits of Dim Sum Bonds? 418
9.4. Cumbersome Repatriation Process 422
9.5. Synthetic Renminbi Bonds 426
Notes 427
About the Author and Contributor 429
About the Website 431
Index 433