A $314 Billion Debt Bill Haunts Asia Borrowers as Rates Rise

(Bloomberg) -- Debt-heavy Asian companies are headed for a reckoning this year when $314 billion of bonds come due, just as refinancing costs for lower-rated firms have risen close to historic highs.

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Firms from India's Vedanta Resources Ltd. to stressed property developers such as China Evergrande Group have US-currency debt maturing in 2023, and in total it's the biggest batch in the coming five years, Bloomberg-compiled data show.

The risk is that surging borrowing costs may make it a challenge for companies with weaker credit ratings to raise funds to repay maturing debt. Financing costs for junk-rated dollar bonds in Asia hit their highest in at least a decade in 2022 though they've since pulled off that peak, Bloomberg-compiled data show. Moody's Investors Service has warned that in its worst-case scenario, speculative-grade corporate defaults could quadruple globally this year.

In Asia, Chinese property developers suffered a record number of defaults in 2022 while South Korea's credit meltdown highlighted how quickly regional debt trouble occurring far from a nation's financial center can spread to the broader market. While some signs suggest that the worst may be over for bond markets with corporate note spreads worldwide tightening sharply in recent weeks on bets that rate hikes will slow, uncertainties remain high.

"Market liquidity and appetite for refinancing will be the key challenges in 2023," said Jim Veneau, head of Asian fixed income at AXA Investment Managers Asia Ltd. in Hong Kong. China's various efforts to support economic growth aren't a "cure-all," but primary bond market activity should pick up as a result of numerous and targeted property policies and the end of Covid Zero, he said.

While investment-grade borrowers from China's leading technology firms to the biggest Japanese banks are unlikely to have much difficulty in raising funds, the spotlight will be on how their junk counterparts plan to pay back their creditors. About 22% of Asia's US-currency notes due in 2023 are either junk grade with lower than BBB- equivalent scores or don't have any credit ratings, according to Bloomberg-compiled data.

From high-yielding debt of Chinese borrowers including stressed property developers to a scandal-ridden state-owned fund, here are some names to watch:

• Vedanta Resources

  • India's biggest zinc and aluminum producer has about $4.7 billion in bonds maturing in the next four years, even as concerns about a global slowdown have weighed on commodities such as base metals. To repay debt, Vedanta Resources is dependent on dividend payouts from its listed Indian unit Vedanta Ltd. that recently reported a sharp drop in profits.

  • While the coupons on Vedanta's dollar bonds over four years range from 6.125% to nearly 14%, the yield to maturity on those notes hover from 24% to 37%, Bloomberg-compiled data show, indicating investor stress over repayment.

• 1Malaysia Development Bhd

  • A $3 billion dollar bond is due in March for 1MDB, the scandal-tainted Malaysian state fund. Creditors will closely watch how the recently-elected Malaysian government plans to repay the debt of the state-owned company. Malaysia will continue to provide allocation to meet financial obligations mainly to redeem the maturing bond, according to the government's fiscal outlook and revenue estimates report for 2023.

• Indian shadow banks/gold lenders

  • US-currency notes of India's lenders against gold as collateral such as Manappuram Finance Ltd. and Muthoot Finance Ltd. and other shadow lenders such as IIFL Finance Ltd. and Shriram Finance Ltd. will also mature throughout 2023. IIFL and Shriram have partially redeemed their bonds. Manappuram's debt is due on Friday.

• China Evergrande Group

  • The company, which is at the epicenter of China's property crisis, has about $5.8 billion of dollar bonds maturing this year including at its units. Progress on Evergrande's effort to reach a debt solution with creditors is under close scrutiny and its debt overhaul would be one of China's biggest ever.

Another area that the markets will closely watch are notes that give borrowers an option to repay them before the official maturity date, especially those issued by financial firms. A life insurer in South Korea triggered a selloff in Asian perpetual bonds late last year after it initially said it will delay the payment, though it later reversed that decision. Here are some of the biggest issues with call dates in 2023:

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