India's Junk Bond Sales Hit $5.6B, Lead Asia's Surge

Key Takeaway

• Asia's high-yield dollar bond sales, led by Indian financial companies, rose for the first time in five years to $5.6 billion.
• Indian shadow banks issued $1.75 billion of the total, exploiting offshore markets amid domestic borrowing restrictions.
• Despite a global increase in junk bond sales, the future outlook for Asia remains uncertain due to potential shifts in US Treasury yields.

Asia's High-Yield Bond Market Revival

For the first time in five years, Asia's high-yield dollar bond sales have seen annual growth, driven predominantly by Indian financial companies seeking to tap into offshore investor markets. This year, sales in the region, excluding Japan, have already exceeded the total for 2023, reaching $5.6 billion compared to last year's $4.4 billion, as per Bloomberg-compiled data. Indian entities have been at the forefront, contributing nearly 41% to this year's sales, signaling a shift in investor confidence towards India's growth prospects and robust consumer demand amidst economic uncertainties and a reigning-in of offshore borrowing by regional counterparts, including China.

Indian Shadow Banks Lead the Charge

The surge in bond sales is notably led by Indian shadow banks, which have been constrained by domestic borrowing limitations imposed by the central bank. This regulatory push has prompted them to seek offshore financing, with Indiabulls Housing Finance Ltd., Shriram Finance Ltd., and Muthoot Finance Ltd. collectively selling $1.75 billion out of the total $2.29 billion by Indian borrowers. The presence of Indian shadow banks in the offshore market, bolstered by their solid balance sheets, has facilitated their access to the dollar bond market, according to Satyajit Singh, head of fixed income strategy at Emirates NBD Bank PJSC.

Global Junk Bond Sales Context

While Asia's junk dollar bond sales have rebounded, the global context remains mixed. In the United States, corporates have sold almost $134 billion of junk bonds this year, a decrease from nearly $194 billion in 2023. Europe has seen a similar trend, with sales dropping to €59.5 billion from over €74 billion last year. Despite these fluctuations, the global market for high-yield bonds has been buoyed by increased investor risk appetite, healthy liquidity, and a lower implied cost of refinancing, as highlighted by Bhavik Pandya, head of debt capital markets for Southeast Asia at Bank of America.

Market Outlook and Strategic Moves

The outlook for the remainder of 2024 remains uncertain, with potential slowdowns in junk bond offerings unless the bearish trend in US Treasury yields reverses. The Asian bond market, however, has seen a surge in issuance, driven by low borrowing costs and dovish signals from the Federal Reserve. This environment has encouraged a boom in US-currency debt offerings, with the market bracing for significant sales in May. Additionally, the inclusion of Indian government bonds in JPMorgan's emerging-market index is expected to attract substantial global investment, further integrating India's financial market with global indexes and potentially easing liquidity concerns.

Street Views

• Bhavik Pandya, Bank of America (Bullish on high yield offshore bond market):

  "A number of Indian borrowers are ready to tap the high yield offshore bond market, taking advantage of strong investor appetite seen in recent deals."

• Satyajit Singh, Emirates NBD Bank PJSC (Neutral on the dollar bond market):

  "There is a fear that if inflation doesn’t ease substantially, the rates could be higher for longer, and strong high-yield issuers are taking advantage of the low spreads to refinance."