A Guide to Asian High Yield Bonds: Financing Growth Enterprises, + Website, 2nd Edition


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 1997–98 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 markets—emerging economies, dynamic issuers, fast-growing companies, hot cash inflows, weak governance, high leverage and even higher risk—converge 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

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.

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