China’s Haitong to Ramp Up Asia Deals as Competition Rises


A top arranger for Chinese junk dollar bonds is looking elsewhere for growth opportunities, as rising competition reduces fees and heightened regulatory scrutiny weighs on the nation’s borrowers.

Haitong International Securities Group Ltd. is trying to win over more sovereign and high-yield borrowers in Asia under China’s Belt and Road umbrella, said Chen Yi, head of global capital markets, in an interview. The firm has a 7.9% share of Chinese high-yield dollar bonds issued this year, ranking it No. 1, according to data compiled by Bloomberg.

Haitong’s push comes as a growing number of banks compete for fewer deals. Sales of new dollar debt by Chinese high-yield issuers has fallen nearly 5% so far this year compared to the same period in 2020, but the number of arrangers has jumped to 81 from 56, according to Bloomberg-compiled data. For all of last year, issuance of such debt slid 27% to $63.6 billion, and Chen expects a further drop of as much as 20% in 2021 as regulatory curbs on debt expansion by developers trim supply.

Rank YTDArrangerMarket Share
1stHaitong International7.9%
2ndGuotai Junan7.4%
4thChina Citic Bank6.3%
5thCredit Suisse5.9%

The average fee rate for Haitong underwriting Chinese junk-rated dollar bonds dropped 10% in 2020 from a year earlier, Chen said.

Beyond the increased competition and anticipated supply declines, another challenge is greater market volatility brought by rising credit risk. China Fortune Land Development Co.’s high-profile default, a collapse in Yuzhou Group Holdings Co.’s profits and worries over China Huarong Asset Management Co.’s financial health have weighed on market sentiment.

The turmoil surrounding Huarong has prompted investors to become more selective with their Chinese dollar bond purchases, widening a divide between well-established issuers and the rest of the market. Only one first-time Chinese dollar-bond issuer has tapped the market since Huarong shocked investors by missing a deadline to report results at the end of March.

Slump in Asia Junk Bond Sales Cuts Underwriting Revenues
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China Property Dollar Bond Sales Fall to Lowest Since 2018

To be sure, overseas deals are also not without challenges. Earlier this year, the brokerage was mandated for a dollar bond deal by the Lao People’s Democratic Republic, which did not proceed after being marketed several times.

Haitong has been shrinking operations outside of Asia, folding its U.S. fixed income trading and sales business after a similar move in London last year, as the company looks to cut back on risk.

Still, in the China high-yield debt market, Chen said Haitong aims to strengthen its position and add more dealmakers this year. “We are still looking to hire bankers who are capable of winning mandates.”

©2021 Bloomberg L.P.

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