Moody's Investors Service says that the level of refinancing risk for Chinese high-yield corporate issuers is manageable from now until 2014, despite some deterioration in the sector's liquidity profile, as evidenced by the Asian Liquidity Stress Index published on 12 November.
Moreover, the low level of maturing offshore debt plus increasingly diversified funding sources bodes well for the sector.
"An increased variety of funding channels is now available to issuers, including access to a liquid onshore financial system, equity-raisings from strategic investors, asset disposals, and ongoing access to the offshore USD bond market, particularly for property developers," says Alan Gao, a Moody's Vice President and Senior Analyst.
Moody's notes that a liquid onshore financial system -- including bank loans, trust loans, and corporate bonds for industrial corporates -- as well as ongoing access to the offshore USD bond market, especially for property developers, supports the refinancing ability of Chinese high-yield issuers.
Issuers which have successfully refinanced through access to onshore and offshore funds include property developers and industrial companies.
"While lowly rated developers -- B3 or below -- will continue to face challenges in tapping the offshore bond markets for refinancing, they have either monetized assets, or brought in new equity investors to address their liquidity requirements," says Franco Leung.
All this is occurring against a backdrop of tightened liquidity, as indicated by Moody's Asian Liquidity Stress Index, which increases when speculative-grade liquidity appears to decrease.
During October, the Index crept close to the high of 37% recorded in the fourth quarter of 2008, the height of the global financial crisis. The China sub-index increased further to 32%, its fourth consecutive monthly rise.
Moody's also notes that relatively low levels of offshore bonds will mature from now to 2014. A total of $1.4 billion in offshore bonds for rated Chinese high-yield corporates will mature by end-2013, increasing to $5.5 billion by end-2014.
The required refunding looks manageable when compared with annual Asian high-yield bond issuance of over $13 billion during 2010-2011. Of this total, Chinese issuers accounted for around $8 billion in each year.
Despite a hiatus in 2H2011, new Chinese high-yield issuance resumed from early 2012 and has picked up momentum in recent months. Total new issuance from 1 January to 14 November 2012 was $6.5 billion and more is expected before end-2012.