By David Yong (BLOOMBERG/ NEWSROOM)
(Bloomberg) — Commodity price declines and stress tests of banks in Europe that have spurred asset sales will create new high yield and distressed trading opportunities this year, according to SC Lowy Financial (HK) Ltd.
Hong Kong-based SC Lowy boosted trading volumes to more than $5 billion in 2014, Michel Lowy, chief executive officer of the independent fixed-income and loan specialist said. The increase was in part thanks to a 47 percent jump in trading bonds of companies with the weakest creditworthiness and a 45 percent increase in secondary loan business.
“I certainly expect trading volumes to increase, from a combination of us gaining market share from investment banks and the market growing in size,” Lowy said in a phone interview on Tuesday. “We’re seeing a good volume of Spanish and Italian corporate” loans, he said.
Spain and Italy will add to sales of distressed real estate loans from the U.K. and northern Europe over the coming 12 months as lenders repair their balance sheets, SC Lowy predicts.
Banks sold almost 55 billion euros ($62.2 billion) of European commercial real estate loans and foreclosed property in the first nine months of 2014, more than 2013 and 2012 combined, according to data compiled by broker Cushman & Wakefield Inc.
Emerging-market distressed debt lost 20.1 percent in 2014, the worst annual performance since 2008, according to a Bank of America Merill Lynch index. The securities, which typically yield at least 10 percentage points more than Treasuries, have risen 4.9 percent this month, erasing January’s 4.4 percent decline as oil rebounded from an almost seven-year low while diplomatic efforts continued for a peace agreement in Russia and Ukraine.
More debt restructurings are expected to emerge this year, Lowy said. Chinese developer Kaisa Group Holdings Ltd. narrowly skirted a default on its dollar-denominated bonds last week and Standard & Poor’s added Brazilian oil contractor OAS SA to a list of companies it expects won’t meet their payment obligations in January.
Distressed debt trading opportunities will also emerge in commodity and energy markets after losses in 2014, SC Lowy said in a Jan. 20 report. Crude and iron ore tumbled more than 46 percent last year while coal prices slumped 25 percent, hurting companies from Cliffs Natural Resources Inc. in the U.S. to Anton Oilfield Services Group Ltd. in China and PT Bumi Resources in Indonesia.
$20 a Barrel
Oil may fall to “the $20 range” by the start of the second quarter as an oversupply fills storage tanks close to capacity, Citigroup Inc. predicted. Recent price advances from the lowest levels in almost six years are “more like a head- fake than a sustainable turning point,” Edward Morse, the bank’s global head of commodity research in New York, said in a report e-mailed Feb. 9.
Anton Oilfield’s $250 million of 7.5 percent notes dropped to a record low 55.8 cents on the dollar on Jan. 21. They were last trading at 69 cents. Canada’s Penn West Petroleum Ltd. and Baytex Energy Corp. said last month they may need to appeal to creditors to forgo debt terms.
In anticipation of the extra business, Lowy, who co-founded the company in 2009, plans to expand its Hong Kong-based debt capital markets team this quarter to enhance the group’s capabilities in primary bond issuance and sourcing of private special situation deals. SC Lowy estimates it had an about 30 percent share of the secondary loan trading market in Asia Pacific excluding Japan last year.
SC Lowy is also expanding in South Korea after acquiring Shinmin Savings Bank in January last year. The bank, now renamed Choeun Mutual Savings Bank, has completed the purchase of Golden Bridge Savings Bank, Lowy said.
“The high yield market is growing,” Lowy said. “There’s still limited opportunities in secondary loans at the moment.”