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Struggling Debt Investors Face Tough Choices on Delayed Payments

Struggling Debt Investors Face Tough Choices on Delayed Payments

A growing number of Asian firms are delaying bond repayments or seeking debt swaps amid mounting stress, boosting uncertainty for debtholders.

Flagship carrier PT Garuda Indonesia and Dr. Peng Telecom & Media Group Co. have extended the maturity on their dollar bonds in recent months, while Chinese business-park developer Yida China Holdings Ltd. conducted a debt exchange earlier this year. Indonesian builder PT Modernland Realty’s bondholders last week agreed to lengthen the maturity of its rupiah notes.

“Exchange offers and debt extensions are very much en vogue at the moment,” said Darryl Flint, chief investment officer of hedge fund Double Haven Capital. “The alternative is to go through a restructuring process,” which risks cross-defaults and critical damage to the underlying business, he said.

While the region’s junk bonds have rallied since March, there’s little relief for the riskiest corner of the market. Dollar debt yielding at least 15% and maturing this year from companies across Asia-Pacific amount to $6.8 billion, according to Bloomberg-compiled data. That massive bill is coming due as Goldman Sachs Group Inc. says wider yield premiums for high-yield notes of weaker Asian borrowers reflect heightened default risk.

An issue for borrowers seeking to roll over their debt is that investors aren’t always willing to accept the move. Hilong Holding Ltd., a Shanghai-headquartered oil equipment and services firm, failed to get its debt swap done and ended up defaulting on its bonds last month.

“Exchange offers and extensions are likely to be most successful where terms offered are fair and where the bondholder group is suitably cohesive to negotiate terms and then support the deal,” said Flint.

For many debtholders, the Covid-19 pandemic has left them in a weaker position than before so they have little choice but to go along with distressed companies’ plans. As the crisis strains borrowers’ finances, investors have been left trying to simply lose less in these cases.

“Bond investors are often stuck between a rock and a hard place in these situations,” said Raymond Chia, head of credit research for Asia-excluding Japan at Schroder Investment Management. “They may not like what the company is offering but they feel they will be worse off if the company defaults and goes into liquidation or a lengthy restructuring.”

©2020 Bloomberg L.P.