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Treasury & Capital Markets
Indian high-yield bonds gain favour amid China property slump
Sustainability focus, improving credit risk profile boost market appeal
Daphne Li 27 Sep 2022

With China’s high-yield property bonds falling out of favour among investors, focus has shifted to India’s fixed-income market as investors search for alternatives.

In mid-2021 issuances by Chinese real estate developers accounted for 35% of the Asia high-yield bond market in mid-2021. However, their market share declined to 10% by mid-2022, according to PineBridge Investments.

“Concerns about Chinese high-yield issuers and global political risks have also led some investors to diversify their portfolio from Chinese offshore bonds, and to consider Indian credits,” says a report from International Capital Market Association.

The average issue size of India’s high-yield bonds reached a record high of US$531 million in 2021. Sustainable bonds, in particular, accounted for 44% of all international bond issuances from the country in 2021, the report adds.

Bonds from the infrastructure sector, which currently constitute around 15% of the annual domestic bond issuance by volume, have drawn wide market interest. This is mainly due to the sector’s improving credit risk profile, according to CRISIL Ratings.

Credit enhancement strategies include improving risk-sharing arrangements, recovery prospects and resolution timelines, revised concession agreements, a more significant role played by central counterparties, and the introduction of infrastructure investment trusts, the Mumbai-based rating agency says.

Indian bonds linked to renewable energy assets are also popular, especially among European institutional investors looking for debt issuances with environmental, social and governance (ESG) elements, says James Wong, portfolio manager at GaoTeng Global Asset Management.

In August 2022 J.P. Morgan was reported to be consulting its investors on adding Indian bonds to its emerging market index. Such a move is expected to bring in an estimated US$30 billion in passive inflows to the country.

And as more foreign institutions look for alternative investment destinations in Asia, the Indian bond market is likely to grow in importance.

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