Noble Group shows junk bond rally to aid Asia refinancing crunch

[SINGAPORE] Asia's beaten-down commodity bonds are now delivering the best returns as raw material prices rebound from 25-year lows.

Noble Group Ltd's 2018 notes returned 37 per cent this month through March 29, leading gainers in junk bonds from Southeast Asia, according to a Bank of America Merrill Lynch index.

Coal producer PT Indika Energy's 2018 notes gained 27 per cent. Asian non-investment grade notes advanced 3 per cent since Feb 29, while distressed debt in emerging markets rallied 7.3 per cent.

The resources turnaround is a boost for borrowers looking for credit lines from Asian lenders and a reprieve for distressed-debt hedge funds reeling from back-to-back losses since October.

Noble Group planned to meet bankers on March 31 in Hong Kong as it seeks to refinance at least US$1 billion of revolving credit facilities, people familiar with the matter said earlier this month. Puma Energy, a Singapore-based fuel storage operator, plans to refinance a US$500 million revolver due in May, people familiar said.

"Most people think that commodity prices in general have seen the worst part of selling" even if a sustained recovery is uncertain, said Leong Wai Hoong, a senior high-yield manager in Singapore at Nikko Asset Management Co. His firm managed 18.5 trillion yen (S$221billion) on Dec 31.

"The rebound is definitely helpful for commodity-based companies seeking financing."

Noble Group's 2018 notes traded at 75.4 US cents on the dollar to yield 19.2 per cent on Tuesday, according to Bloomberg-compiled prices, capping a 20-cent rally this month. Indika's 2018 notes rose to 61.3 US cents from 48.4 US cents. The 2021 securities from Puma Energy climbed 4.4 US cents to 95.9 US cents to end a four-month slide.

Southeast Asian companies are seeking US$12.2 billion in loans, or 14 per cent of the loan pipeline across the Asia- Pacific region, according to data compiled by Bloomberg.

Noble Group declined to comment on the commodities rebound or its refinancing, according to its external media advisers at Bell Pottinger Plc.

Hedge Fund Reprieve

Demand for high-yield debt revived after Federal Reserve policy makers earlier this month softened their outlook for the pace of interest-rate increases. The European Central Bank stepped up its bond-buying program in March while the Bank of Japan adopted a negative-rate policy in January.

"The rally in all the risk markets are still driven by the posturing of the central banks, not just the Fed but the ECB and BOJ too," Mr Leong said.

The March rebound will come as a reprieve for hedge funds that bet on distressed debt, after they fell for a fourth month in February with a 1.03 per cent setback, according to Eurekahedge Pte, which tracks the performance of managers overseeing US$2.22 trillion of capital globally. Over a 12-month period, the strategy lost 7.9 per cent.

"It seems like distressed debt hedge funds will be back in the green for March," said Mohammad Hassan, an analyst in Singapore at Eurekahedge.

"The rise in oil prices and dovish sentiment from the Fed should support a recovery in the high-yield market for the moment."

BLOOMBERG