By Scott Murdoch

HONG KONG, (Reuters) – Asia’s high-yield corporate bonds will be under control in the first half next year due to China’s turmoil in its property sector. This is after a series of defaults by Chinese real estate companies left investors reeling.

Chinese property developers are responsible for most high-yield junk bond deals.

Concerns about the financial well-being of Chinese developers have severely affected the volume of these issues. In 2021, the lowest level of corporate bonds with high-yield in Asia-Pacific fell to 3 years.

The bond payments of Kaisa Group and China Evergrande Group were both not received this year.

After a series of downgrades to credit ratings of developers indebted to China, the failures to pay have roiled China’s high-yield bonds, caused outflows, and left asset managers nervous about potential issuers.

According to Refinitiv, $50.4 billion was issued in Asia-Pacific this year of high-yield corporate bond. This is the lowest amount since 2018, which compares to $63.9 billion for 2020. A strong year will result in higher volumes for 2021 due to better credit quality across the region.

China was responsible for the majority of regional decline. Investors began closing their books earlier to prevent the spread and consequences from the sell-off in the property sector over the last quarter.

Ernst Grabowski from Asia Pacific debt syndicate said, “It is a relatively short list that could reopen this high-yield marketplace.” Morgan Stanley (NYSE:).

It would need to have investors who feel it is safe to lend money to and are able to provide enough support to other investors.

The Refinitiv data revealed that new high-yield Chinese deals in dollar and yuan were cut to $3.2 Billion in the last quarter, down from $9.7 Billion in the third quarter.

Advisors stated that the first deal breaking the high yield freeze must be made by a larger company in order to provide investor confidence that new issuance is possible to make the market more open to all issuers.

Avinash Thakur said, “New issuance from China’s (Chinese property) sector, I think could sometime be sometime in the second half, perhaps even the first quarter,” Barclays (LON 🙂 Asia Pacific head for debt origination

“Debt Investors are more focused upon the extent of corporate China leverage, but they also feel that the correction occurring now is overdue.”

According to bankers, a new issuance will carry an increased interest rate for companies than deals in 2020, due to the turmoil in the markets. Investors should be encouraged by this fact.

Philip Lee from law firm DLA Piper stated that “investors will realize there are still great credits in Asia” and added, “During periods of low activity, investors tend to hoard cash they can deploy.”

According to him, however, the market may not open for six months.