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Southeast Asia Bond Market Deloitte Restructuring Services Special report October 2019
Southeast Asia Bond MarketDeloitte Restructuring ServicesSpecial report October 2019
Southeast Asia Bond Market | Deloitte Restructuring Services
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IntroductionSEA BondsThis Special Report analyses trends in the Southeast Asia (“SEA”) Bond Market; examining issuances, upcoming maturities, credit quality and historical default trends in non-government / non-bank corporate bonds where the Country of Risk is anchored in SEA. Bonds have become an increasingly popular finance instrument in SEA as investors seek out higher returns. With recent news media in Singapore indicating a deterioration in bond quality and a potentially imminent wave of defaults; we take a closer look at the data.
Characteristics of Bonds
• Bonds are a type of tradeable debt security issued by Companies to institutional and retail investors.
• Bonds are fixed income instruments that pay a pre-set interest “Coupon” instalment.
• Typical tenors are 5 years (although some investment grade bonds run to +20 years) with the Principal or “Face Value” repayable at maturity.
• Bonds rank lower, but earn a higher return, than senior secured debt.
• Bonds generally rank higher than preferred and ordinary equity (but with capped value upside).
• An unresolved bond default at a coupon payment or maturity date may trigger corporate insolvency and impact returns for all capital classes.
Illustrative 2019 Singapore News Media Headlines
A Quick Primer: Bond Finance
250
300
10050
600
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
1,300
USD
’m
Senior SecuredLoans
Bond Finance
Mezzanine Debt
Preference Shares
Ordinary Equity
Illustrative Corporate Finance Capital Stack
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IssuancesIssuances increased 30% in 2017 peaking at USD71b in 2018. The increase in bond issuances was primarily driven by Indonesian and Thai bond issuers in Oil & Gas, Mining and Public Utilities. The Real Estate sector is consistently the largest bond issuer (by value) in SEA with funds used in capital projects and generally seen as having good safety coverage through real property security and therefore lower risk. 31% of bond capital raisings since 2014 have been USD issuances (increasing FX exposure).
Issuances by Country of Risk
13 11 8 13 9 9
15 1917
1817 11
717
16
8
15 1216
17 23
19
0
200
400
600
800
1,000
1,200
0
10
20
30
40
50
60
70
80
USD
’b B
onds
Issu
edU
SD’b
Bon
ds Is
sued
USD
’b B
onds
Issu
ed
1
5
# of Bonds Issued
2017
0
2014
5
49
2015
70
0
2016
71
1 2 5
2018
1 2
9M2019
5753 51
No. Bonds
SG
MY
ID
TH
VN
PH
Issuances by Industry
Issuances
5,962bonds
$350.2bdebt
2014 - 2019
15 14 13 18 17 13
7 6 66 7
6
9 1196
7
5
98 7
15 14
9
0
200
400
600
800
1,000
1,200
0
10
20
30
40
50
60
70
80
3
5 3
# of Bonds Issued
454
20152014
1
5 55
1
35
3
70
4
2016
5
344
5
2017
43
24
2018
3
51
34
3
2019
5753 49
71
Public Utilities
Oil & Gas
No. Bonds
Real Estate
Retail
Shipping and Offshore
Infrastructure
Consumer Goods
Telecommunications
Mining
Others
Issuances by Currency
0
10
20
30
40
50
60
70
80
2017 20192015 2016
10%
70
51
36%
2018
29%
53 49
71
57
17%
26% 36%
13%
17%
11%37%
7%
15%
19%
11%
13%
8%11%9%
24%
2014
19% 20%
20%22%
22% 23%
33%32%
30% 20%
SGD
USD
THB
MYR
Other
Sources: Bloomberg, Deloitte Analysis
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Maturities Singapore faces an USD11b wall of debt maturities in 2020 with concentrations evident in the Real Estate and Shipping & Offshore industries which account for 63% of the principal debt. The highest sector concentrations can be seen in Real Estate, Public Utilities, Retail, Shipping and Offshore industries.
Maturities by Country of Risk
117 8 6 8 6
12
7
15
88
8
6
8
9
63
16
17
14
7
3
4
4
3
44
3
0
100
200
300
400
500
600
700
800
900
1,000
0
5
10
15
20
25
30
35
40
45
50
55
2
# of Bonds Maturing
2020
044
1
0
2021 2022
1
2023
0
2024 2025
50 49
3336
21
8
No. Bonds
TH
ID
SG
MY
PH
VN
24%
6%
12%
8%8%
6%
4%
9%
7%
4%
3%2% 5%
1%
Real Estate
Retail
Oil & Gas
Shipping and Offshore
Public Utilities
Infrastructure
Consumer Goods
Telecommunications
Mining
Construction
Hospitality
Industrial Machinery
Airlines
Others
USD50b
Maturities
3,270bonds
$234.0bdebt
2019 - 2025
2020 Maturities by Industry
USD
’b B
onds
Mat
urin
g
8
Sources: Bloomberg, Deloitte Analysis
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Risk ratings 24% of the 2020 maturing SEA Bonds (by value) are considered investment grade quality based on ratings gathered from global (S&P, Fitch and Moodys) and local (Pefindo, MARC, PHIL) rating agencies. 76% of the 2020 SEA Bond maturities are unrated (likely due to the compliance costs) highlighting a potential lack of visibility about the quality of the SEA Bond market. The historical default rate for non-rated Bonds in SEA was 2.01% p.a. 2014 to 2019; which would equate to approximately USD766m of non-rated bond defaults in 2020.
Sources: Bloomberg, Deloitte Analysis, S&P 2018 Annual Global Corporate Default and Rating Transition Study5
7.2%
5.6%
5.7%
4.7%
0.8%BB
AA
BBB
AAA
A
Ratings of bondsmaturing 2020
:
0 1 2 3 4 5 6 7 8 9 100
10
20
50
60
70
Time Horizon, Years
Def
ault
Rat
e (%
)
S&P Global default rates (over time by rating) S&P Bond rating default path
0
BBB+
CCC
BB-
1981- 2018 Median
Trailing 12 quarter median
Rating Amountoutstanding
(USD’bn)
Years from default
2.9
2.4
0.4
2.8
3.6
Industry breakdown of SEA non rated bonds (maturing 2020)
6.6%
25.3%
10.5%
8.4%
4.7%
5.2%
9.6%7.2%
3.2%
4.8%
5.1%
5.8%
3.6%
Public Utilities
Hospitality
Airlines
Shipping & Offshore
Infrastructure
Real Estate
Telecommunications
Retail
Industrial Machinery
Oil & Gas
Consumer Goods
Construction
Others
USD38b
75.9%
NR
7 6 5 4 3 2 1 0
CCC+
BBBB
ABB
AA
AAA
38.1
Maturities
936bonds
$50.2bdebt
2019 - 2020
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Market view Higher bond yields generally compensate higher levels of risk at issuance. The market also takes a view on elevated risk during the term of a bond when the yield to maturity is higher than the coupon rate (i.e. the bond is priced at a discount); this may be due to company or market factors. Performing bonds are highlighted in green and bonds that have defaulted or which are currently / have been subject to a restructuring are highlighted in red. Higher Yields to Maturity (the vertical axis) are indicative of a higher level of risk.
Yield Vs coupon rate
Berau Capital - YTM: 29.7%
Swiber - YTM: 154.8%
Miclyn Express Offshore - YTM: 30.2%
Nam Cheong Ltd - YTM: 160.0%
Swiber - YTM: 45.3%
Ezra - YTM: 97.5% Swiber - YTM: 91.9%
Swiber - YTM: 100.0% Swiber - YTM: 148.9%
Enercoal Resources - YTM: 20.1%
Berau Coal - YTM: 17.3%
Hyflux
Hyflux
Off
the
char
t
PerformingDefaulted / Restructuring
$1b
KrisEnergy - YTM: 50%KrisEnergy - YTM: 36% Duniatex - YTM: 71.8%
ASL Marine - YTM: 17%
ASL Marine - YTM: 14%
SG + THaverage
VNaverage
IDaverage
Maturities and Defaults
966bonds
$57.7bdebt
2014 - 2020
Yiel
d to
mat
urit
y (%
)
Coupon rate (%)
Sources: Bloomberg, Deloitte Analysis
Southeast Asia Bond Market | Deloitte Restructuring Services
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Industry leverage (2020 bond maturities)
26.1
$10b
18.7
Industry Leverage Benchmark(All SEA listed companies)
Bond Debt (Face Value)
Off
the
char
t
Maturities
936bonds
$50.2bdebt
2019 - 2020
Indu
stry
leve
rage
9
0
1
2
3
4
5
6
7
8
Cons
truc
tion
Reta
il
Tele
com
mun
icat
ions
Serv
ices
Cons
umer
goo
ds
Oil
& g
as
Clot
hing
& te
xtile
s
Pape
r & p
rintin
g
Indu
stria
ls c
hem
ical
s
Indu
stria
ls m
achi
nery
Indu
stria
ls u
tiliti
es
Real
est
ate
Hos
pita
lity
Min
ing
Ship
ping
& o
ffsho
re
Com
pute
rs &
ele
ctro
nics
Hea
lthca
re
Infr
astr
uctu
re
Tran
spor
tatio
n &
logi
stic
s
Airli
nes
1.0
1.8 1.92.1
2.7 2.7
3.64.0
4.6 4.95.1 5.5
5.6 5.75.9
6.7
7.3
8.6
Maturing bondsRefinancing RiskMore than half of the SEA bond issuers demonstrate leverage greater than 4x (at an aggregate industry level) indicating a heightened risk of refinancing risk at maturity. In this analysis Leverage means the number of years of total industry EBITDA required to repay total industry debt. An analysis of historical bond defaults and restructurings is set out on the following page.
Sources: Bloomberg, Capital IQ, Deloitte Analysis
Note: Leverage is a generally accepted credit quality metric but will be less relevant to certain industries. Illustratively, Real Property or Infrastructure earnings may be inconsistent between periods and event driven such that debt to assets or debt to equity may be a better indicator of credit quality.
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Historical defaultsIndonesia experienced a high level of defaults in 2014 and 2015 driven by declining commodity prices and adverse currency movements. Singaporean issuers have seen a spike in defaults in 2016 and 2017 driven by headwinds in the Oil & Gas, Shipping and Utilities industries. Mining, Shipping & Offshore, Electronics and Oil & Gas accounted for 80% of the defaults and restructurings by value in the review period.
Bond Defaults & Restructurings by Country of Risk
0
2
4
6
8
10
12
14
16
0.0
0.5
1.0
1.5
2.0
2.5
2019
USD
’b B
onds
Issu
ed
2016
# of Bonds Issued
20152014 2017 2018
1.5
0.6
1.4
2.4
0.3
0.7
No. Bonds
ID
MY
SG
TH
34%
18%16%
13%
7%
4%
Bond Defaults & Restructurings by Industry (entire period)
Shipping & Offshore
Mining
Oil & Gas
Computers & Electronics
Consumer Goods
Clothing & Textiles
Public Utilities
Retail
Other
USD7b
80% of defaults
1,127 1,000 950 423 375 325 300 440 750
Peris
ai
Oth
er
121
210
170
150
230
230
Ezio
n
ASL
Mar
ine
Ezra
Mic
lyn
Trik
omse
lH
yflux
Nam
Cheo
ng
Kris
Ener
gy
Swib
er
Dun
iate
x
Bera
u
Blue
Oce
an
Ener
coal
Bum
i
GAT
E
Bond Defaults & Restructurings by Company (entire period)
Source: Deloitte research and analysis
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Deloitte Restructuring Services We work with clients to improve outcomes across the stress spectrum ranging from companies seeking to turnaround short term underperformance to those in deep financial distress requiring crisis management. We are actively helping businesses in Southeast Asia to turnaround, transform and grow their businesses; how can we help you?
• Turnaround & Value Creation Services for underperforming companies using M&A, restructuring and private equity techniques to deliver performance improvement and generate cash …fast
• Portfolio Lead Advisory Services deleveraging and loan portfolio sale transactions acting sell-side / buy-side and providing strategic advisory to maximize value from non-core assets
• Financial Restructuring Advisory business reviews and options assessment to establish a foundation to assist stakeholders to negotiate corporate refinancing, rescheduling, restructuring and M&A strategies
• Contingency Planning before and during complex restructurings, supporting with options analysis and “plan B” scenarios to drive a consensual deal or provide a vital bridge into insolvency
• Formal Insolvency where a consensual restructuring is not possible; we can provide assistance to debtors and creditors through formal corporate (Court supervised) insolvency and / or bankruptcy processes
Contingencyplanning
Turnaround &Value CreationValue Creation
Com
pany
per
form
ance
/hea
lth
Time
FinancialRestructuring
Advisory
Formalinsolvency
M&A Opportunity
Distressed M&A
Level of influenceManagement Creditors
Portfolio LeadAdvisory Services
Accelerated M&A
Deloitte Restructuring Services
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Basis of preparation Source Data Bloomberg; extracted on 1 October 2019; listed and non-listed Bonds where the Country of Risk is in SEA.
Sample We have analysed 5,962 bond issuances with a combined face value of USD350.2b.
Country of Risk is determined with reference to the location of incorporation, operations, the issuer’s parent company, sources of revenue, or cash flows generated by the issuer.
Industry Classification 20 key industries with classifications based on the BICS classification level 2 obtained from Bloomberg.
Period Historical issuances and defaults for the period January 2014 to September 2019 and Bond Maturities from September 2019 to December 2025.
Coupon Rate The yield paid by a fixed-income security at regular intervals. Coupons are usually paid annually or semi-annually.
Yield to Maturity The total return expected on a Bond each year if the Bond is held until maturity. Yield to maturity is a function of the Face Value, Price and time to maturity (n) of a Bond.
Leverage A measure earnings (EBITDA) versus debt. The number of years of earnings required to repay debt.
Bond Credit Rating Issuer credit ratings are based on a rating agency’s analysis of the capacity and willingness of the obligor to meet its financial obligations; the nature and provisions of the financial obligation; and the protection afforded by, and relative position of, the financial obligation in the event of a bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. For the purposes of the analysis in this report, credit ratings have been standardized across international (S&P, Fitch, Moody’s) and local (PEFINDO, MARC, Phil) credit rating agencies as follows:
Bonds with a rating of at least BBB are considered to be investment grade.
Limitations This communication contains general information only. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. We have not audited or sought to verify the source information and make no representations as to accuracy or completeness.
S&P Fitch Moody's PEFINDO MARC Phil
AAA AAA AAA Aaa idAAA AAA PRS Aaa
AA AA AA Aa idAA AA/MARC-1 PRS Aa
A A A A idA A/MARC-2 PRS A
BBB BBB BBB Baa idBBB BBB/MARC-3 PRS Baa
BB BB BB Ba idBB BB/MARC-4 PRS Ba
B B B B idB B PRS B
CCC CCC CCC Caa idCCC C PRS Caa
CC CC CC Ca - - PRS Ca
C C C - - - -
D D D C idD - PRS C
NR NR NR NR - - -
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Key contactsAndrew GrimmettSEA Restructuring Leader T: +65 6530 5555 [email protected]
Richmond AngRestructuring Partner, Singapore T: +65 6216 3303 [email protected]
Wei Cheong Tan Restructuring Partner, Singapore T: +65 6531 [email protected]
Malek Said Restructuring Partner, Malaysia T: +603 7610 [email protected]
Edy WirawanFinancial Advisory Leader, Indonesia T: +62 21 5081 [email protected]
Aye ChoFinancial Advisory Leader, Myanmar T: +951 230 [email protected]
Report Author Matt BeckerRestructuring Partner, Singapore T: +65 8332 [email protected]
Justin LimRestructuring Partner, Singapore T: + 65 6216 3269 [email protected]
Siew Kiat Khoo Restructuring Partner, Malaysia T: +60 37610 [email protected]
Thavee ThaveesangsakulthaiFinancial Advisory Leader, Thailand T: +66 (0) 2034 0000 [email protected]
Phong LeFinancial Advisory Leader, Vietnam T: +84 28 3521 [email protected]
Diane Yap Financial Advisory Leader, Philippines T: +63 2 581 [email protected]
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