HONG KONG: The wild ride in an Indonesia textile maker’s dollar bonds is putting a spotlight on the risks that Asia junk bond buyers are taking.
Four months after a subsidiary of Indonesia’s Duniatex Group sold a US$300 million bond, attracting over US$1 billion of orders, that bond has plummeted, losing nearly 67 cents on the dollar this week.
The stunning fall, prompted by a missed loan payment by another group subsidiary, has shocked bond investors.
The Indonesian firm’s slump also highlights risks that investors face as they buy into the region’s junk bond market, which has returned 11% so far this year, the most since 2016.
Recent bond defaults out of China have raised concerns about the quality of financial reports.
One defaulter, Chinese firm Kangde Xin Composite Material, was found to have faked profit, according to the nation’s stock market watchdog.
“Governance standards have to be stronger across the board for Asia high yield,” said Dhiraj Bajaj, portfolio manager at Lombard Odier. “Where quality standards are not met, investors should say no at any price.”
S&P cut its credit score on Delta Merlin Dunia Tekstil’s dollar bonds by six steps to CCC- this week, citing its “significant liquidity challenges.”
The ongoing US-China trade tensions are “significantly hurting” the Indonesian textile market, and Duniatex’s liquidity was affected by plummeting prices due to the oversupply of imported cheap fabric from China, S&P also said.
Fitch Ratings on Thursday cut Delta Merlin Dunia credit score to B-, reflecting “heightened refinancing and liquidity risk.” The company faces “contagion risk” from affiliates that could limit its banking and capital-market access, the ratings firm said.
More stress is emerging in Indonesia. Fitch Ratings on Wednesday cut its credit score on notes sold by Agung Podomoro Land’s subsidiary, citing delays in raising funds for refinancing.
The company’s US$300 million 2024 bond fell 11 cents on the dollar to 70.2 on Thursday, according to data compiled by Bloomberg.
‘Don’t call or email’
The communication between Delta Merlin Dunia Tekstil and investors also highlights the difficulties bond buyers can face when things go sour.
There have been concerns about disclosure in recent defaults of unlisted companies including dollar bonds sold by CEFC Shanghai International Group and Reward Science and Technology Industry Group Co.
Neither Duniatex nor its subsidiary that sold the bond or the loan are listed.
An email sent from a Duniatex executive to an investor that was seen by Bloomberg News, said “We will try to ring-fenced DMDT as the bond issuer” from a missed payment on a loan.
“We will update later, please don’t call or email at this time, as my Inbox flooded with emails,” the email also said.
Calls to Duniatex seeking comment went unanswered.
BNP Paribas SA and Standard Chartered Plc arranged the bond sold in March. A spokeswoman for Standard Chartered declined to comment, while a spokesman for BNP Paribas also declined to comment.
“This event reminds us of potential problems outside of China as well, with a lack of disclosure for private companies,” said Raymond Chia, head of credit research for Asia excluding Japan at Schroder Investment Management Ltd.