Southeast Asia’s souring loans are becoming unpalatable even for some distressed-asset funds.
SC Lowy Financial, an independent fixed-income firm founded by former Deutsche Bank AG employees, says secondary loan trading volumes are at the thinnest in a decade even with discounts near 20 percent for borrowers, including Singapore-listed Noble Group Ltd. and Mercator Lines Singapore Ltd. The primary market is also receding after Southeast Asia syndicated loan volumes slumped 39 percent to a five-year low in 2015.
“The secondary loans market, in 2015 and continuing into this year, has been totally dead,” said Michel Lowy, cofounder and CEO of SC Lowy, which focuses on loans, bonds, trade claims and special situations. “It’s the lowest volume I have come across in over 10 years, mainly because there’s been a massive gap between the buyers’ and the sellers’ expectations.”
Investors that buy loans, or portions of them, in the secondary trading market are being more discerning as some of Southeast Asia’s vulnerable borrowers endure a multiyear slump in commodity and shipping prices. China’s slowest economic growth in a quarter century, the lowest shipping rates in three decades and crude below $30 a barrel have pushed Asia’s bond risk to the highest in almost four months, based on credit- default swap prices.
Nonperforming loans in Indonesia, Singapore and Thailand are at their highest levels in at least five years, according to data from the nations’ central banks. Net troubled loans rose to 0.8 percent of all bank assets in Singapore in the third quarter of 2015, the highest for a three-month period since that ending March 2010, official data show.
Asian junk bonds traded at a four-year low this month, based on the average price in a Bank of America Merrill Lynch regional high-yield dollar debt index. The last 15 months has seen Indonesian coal producers PT Berau Coal Energy and PT Bumi Resources and Singapore-listed China Fishery Group Ltd. renege on their borrowings. Jurong Aromatics Corp., which took a $1.73- billion loan facility in 2011 to fund its petrochemical plants in Singapore, fell into receivership last September. Ratings for energy and mining companies have been put on review for downgrades.
Commodity trader Noble Group’s credit rating was cut to junk by Standard & Poor’s this month, following a similar move by Moody’s Investors Service in late December, sending the price of its 2020 dollar bonds to 41 percent of their face value on Friday.
The company’s loans are trading at a “very high” yield on the secondary market, with its unsecured facilities due in May being offered in the 80s, Lowy said. Its loans were seen at 89 cents to 92 cents in the dollar early December, having traded at 92 last October and 87 last September, according to Bloomberg-compiled prices.
“Noble’s loans have seen very little trading,” Lowy said. “The spreads are widening. The offer prices are coming down and so are the bids. As a result, they don’t trade much at all.”
Noble Group declined to comment on the prices of its loans in secondary trading in an e-mail on January 24. Mercator Lines Singapore has reported losses for the last 13 quarters and its CEO resigned last week. While its loans are more actively traded, they’re at “very stressed levels,” according to Lowy. The coal and crude shipper said a local court appointed Yit Chee Wah as its judicial manager on January 18, following an application by lender HSH Nordbank AG last September, according to stock-exchange filings.