Asian corporate bonds market hits US$100b

Companies seeking cheap funds help set major milestone for a market worth US$10b in 2002

PUBLISHED : Monday, 01 October, 2012, 12:00am
UPDATED : Monday, 01 October, 2012, 4:15am

Corporate bond issuance in Asia ex-Japan last week passed US$100 billion for the year as companies continue to rely on the inexpensive financing channel for expansion and risk-averse investors favour more reliable returns in the face of lacklustre stock market performances.

The increased capital flows into Asian bond markets from debt-laden economies in the West is likely to drive investor demand for coupon-paying products, given the challenge in the region of supporting a growing number of older people in the face of stubbornly high unemployment.

The market absorbed US$106 billion of fixed-income instruments in the three main international currencies - the US dollar, the yen and the euro - in the first nine months of the year, according to data provider Dealogic.

Terence Chia, co-head of debt syndication for Citigroup in Asia, told the South China Morning Post the US$100 billion benchmark was an important milestone for the Asian bond market that only a decade ago was worth just US$10 billion a year.

He said corporate borrowers had been encouraged to look more to bond markets amid signs that banks had tightened loans over concern about asset quality and borrowers' ability to repay the debts.

Chia said falling coupon rates also encouraged corporate borrowers to tap the debt capital markets.

He cited the example of Hong Kong-based developer Nan Fung, which had seen its coupon rate decline by 75 basis points over a year due to a mixture of strong investor demand and an environment that was ripe for bond issuance in the region.

"Nan Fung's coupon rate dropped to 4.5 per cent from 5.25 per cent a year earlier," Chia said.

Apart from the lure of low interest rates, corporate borrowers faced a tight credit environment, prompting their move to the fixed-income market, Chia said.

He said more investors, meanwhile, were looking for alternatives to low-returning US Treasuries, which were likely to remain low after the US Federal Reserve announced a third round of bond-buying.

The US central bank has also flagged holding interest rates near zero through to late-2014, prompting passive investors in the developed markets to look for stable income from Asian bond markets.

Since the Fed's latest bond-buying announcement, yields on 10-year notes dropped to 1.617 per cent on Friday, down from 1.724 per cent on September 13, while 30-year bonds fell to 2.798 per cent from 2.932 per cent for the same period. Bond yields fall when prices rise.

Mid-sized property developer Kaisa Group's US$250 million high-yielding bond issue made last month was 16 times oversubscribed, attracting orders worth US$4 billion from long-term institutional investors such as pension and endowment funds.

"The response to Kaisa's five-year senior notes suggests that demand remains very robust," Chia said. Investors were likely to continue favouring long-term bonds, he added, because interest rates were likely to stay flattish or near zero until 2014.