Telekom Malaysia Bhd and South Korean steelmaker Posco are among Asian companies offering bond investors a “great opportunity” as they’re paying yields much higher than their default risk, according to Omega Global Investors Pty Ltd.
Omega, which is based in Melbourne and manages about A$330 million (US$285 million), is also buying investment-grade bonds sold by South Korean lender Woori Bank and Hong Kong’s Li & Fung Ltd, the biggest supplier to retailers including Wal-Mart Stores Inc, Investment Director Mat McCrum said in a July 16 interview in Sydney.
“That’s a great opportunity, because it doesn’t stack up with the fundamentals,” McCrum said. The firms have “really healthy balance sheets, they’re great companies to invest in, but they pay this huge spread.”
Relative yields on Asian investment-grade company bonds imply a default rate of more than 26 per cent, according to McCrum, while Moody’s Investors Service expects a default rate of 1 per cent this year for non-financial firms in Asia-Pacific excluding Japan. Asia, leading the recovery from the worst recession since World War II, is forecast to expand 7.75 per cent this year compared with global growth of 4.6 percent, according to the International Monetary Fund.
Posco, Nucor
Posco, Asia’s third-biggest steelmaker, has US$300 million of 5.875 per cent notes due 2016 that are yielding 190 basis points more than Treasuries, Royal Bank of Scotland Group Plc prices show. The company holds the same A rating from Standard & Poor’s as US steelmaker Nucor Corp., whose US$600 million of 5.75 per cent notes due the following year pay a spread of 101 basis points, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Telekom Malaysia, the Kuala Lumpur-based phone company that’s rated A- by S&P, pays a 195 basis-point spread on its 5.25 per cent notes due in September 2014, according to BNP Paribas prices. France Telecom SA’s US$1.25 billion of notes due July 2014 with the same debt grade offer an 87 basis-point spread, the prices show.
Telekom Malaysia, which is developing a high-speed broadband network, has had a higher profit margin than France Telecom for at least the past four years, according to data compiled by Bloomberg.
Asia offers investors the chance to profit from “thriving, healthy, dynamic economies with good companies,” McCrum said. Omega’s global credit fund has about 30 percent of its assets invested in Asian debt and may increase it to as much as 34 percent, he said.
Omega, founded in 2008 and 19.9 per cent owned by a unit of Macquarie Group Ltd, manages money for institutional clients including Telstra Corp’s pension fund, according to its website. -- Bloomberg
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