Indonesian retailer Multipolar sold a $200 million junk bond on Friday, making it one of only a handful of Asian companies to brave the volatile markets since the US Federal Reserve signaled it would start to withdraw stimulus.
Multipolar priced its five-year high-yield bond at 9.75%. It follows South Korea’s MagnaChip Semiconductor, which sold $224 million worth of high-yield bonds on July 15.
The deals are a sign that investors’ appetite for riskier financial instruments may be returning after the Federal Reserve clarified it would not withdraw its monetary stimulus before US economic growth strengthens.
Other Asian companies will closely watch the performance of this handful of high-yield bonds in the secondary markets. Many of these companies are in need of capital but are hesitant to tap markets due to volatile prices.
Yields spike on Asian junk bonds.
Multipolar’s bond traded at 98 cents on the dollar while MagnaChip’s bond was trading at around par on Friday.
This vanguard of high-yield issuers is breaking the hiatus in the bond markets that has held since May. High-yield issuance dropped to $6.6 billion in the second quarter of the year, down from the quarterly record of $16.4 billion in the first quarter, according to data provider Dealogic. Hong Kong-based Nord Anglia Education (UK) Holdings’ $176 million junk bond was the only high-yield Asian issue in June, Dealogic's data shows.
J.P. Morgan’s Asia credit index for non-investment grade shows yield-to-maturity has risen sharply since May as investors have withdrawn from riskier assets, especially in emerging markets.
Multipolar chose to launch the deal this week partly because it needed to repay a couple of bank loans, but also to get ahead of the queue of Asian companies that bankers say are waiting to tap markets.
It chose to issue junk bonds over taking out more bank loans because it did not want to continue to tie up assets being used as collateral for the loans, said bankers familiar with its thinking.
Even though high-yield debt is generally more expensive for a company than a loan, bankers noted that interest on Indonesian loans has been rising, making the cost more comparable.
Multipolar, the owner of businesses such as Matahari Department Stores and a chain of supermarkets, kicked off a roadshow to market its bonds to potential investors on July 12, with pit stops in Hong Kong on July 15, Singapore on July 16 and London on July 17.
Around 56 investors bought into the deal, 86% of which were Asia-based. Some 12% of the deal was allocated to European investors and 2% to offshore US accounts. About 10% of the orders came from private banking clients. Investors sought to understand the holding company's structure among other issues, according to people familiar with the deal.
The banks running the process for Multipolar were Citi and Deutsche Bank, which acted as both global coordinators and bookrunners. Nomura was also a bookrunner on the deal.
