Bond sales in Asia next year are expected to trump this year's record issuance as Chinese firms look abroad for acquisitions and funding, according to UBS. Mainland China and Hong Kong represented 43 per cent of the unprecedented US$274.5 billion of debt denominated in US dollars, euros and yen this year in Asia excluding Japan, a 33 per cent increase from last year. Chinese corporations made a record US$316.9 billion in overseas acquisitions. China's rise means Beijing is now home to two of the world's top 10 listed companies by revenue, China Petroleum & Chemical Corp and PetroChina, and the largest bank by assets globally, Industrial and Commercial Bank of China. Giants like Alibaba Group Holding will continue doing record-breaking transactions, driving up volumes and investment banking fees from Asia, UBS and HSBC Holdings say. "We've seen a structural shift to funding in capital markets over the past several years," said Alexi Chan, the head of debt capital markets for Asia Pacific at HSBC, the region's top bond underwriter this year. "Mergers and acquisitions and regulatory bank capital have been key drivers of this activity in 2014 and both of those trends will continue to be very significant next year." The biggest stock offering of the year was from internet company Alibaba, which also completed an US$8 billion bond transaction, a record for issuance in Asia. There were eight public debt sales of U$4 billion or more this year compared with only five of that size from 2005 to last year. China originated four in the past 12 months. "China has the scale to do that kind of financing," said Herman van den Wall Bake, the head of fixed income capital in Asia for Deutsche Bank, which topped the global emerging markets high-yield league table this year. "Historically, the country was underrepresented and the fact it now has this size is only proportionate to its scale relative to other emerging markets." The mega transactions included Bank of China's US$6.5 billion of perpetual notes in October that can be converted into stock if the lender's equity buffer drops to 5.125 per cent. That deal was the largest such sale in the region's history. "Bank capital issuance under Basel III has been the single biggest new theme in the market," Chan said, referring to sales to meet rules the Bank for International Settlements made after the global financial crisis aimed at limiting the need for governments to rescue lenders using taxpayer money. Chinese banks raised the equivalent of US$84.5 billion in notes that count towards their capital this year, including US$17.3 billion offshore, as they strengthened their balance sheets to deal with rising bad debts and a slowing economy. "There was a significant pickup in bank debt, including bonds from companies supported by letters of credit from Chinese institutions," said Paul Au, the head of debt syndicate in Asia for UBS, the No1 ranked arranger this year for high-yield G3 debt in Asia outside Japan. Au said lenders' bonds would continue to be strong, as well as notes from lower-rated companies. Junk debt issuance touched a record US$27.9 billion, 16 per cent more than last year and almost double 2012, with 67 per cent coming from China. "High yields still going to be a key product for a lot of accounts in the region," Au said. Lower interest rates in China were likely to prompt more investors in Beijing and Shanghai to transfer funds to offshore markets, which might support US dollar and dim sum bond sales from the country next year, especially those with higher coupons, he said. "On top of real estate you'll see a lot of new sectors tapping the market," he said. Van den Wall Bake said weakness in commodities was the main hurdle in the way of another bumper year. "If oil doesn't recover, that will have knock-on effects on the creditworthiness of nations," he said. Au predicts total issuance next year will top this year's by as much as 15 per cent, as Chinese issuers seek funding in alternative currencies. Borrowers from Asia raised a record €16.8 billion (HK$159.4 billion) in the single currency this year. An unprecedented US$70 billion of dollar-denominated debt is also due for repayment or can be called back by companies in the region next year, which is expected to bolster issuance, according to Chan. "It was a fascinating and defining year for both volume and bespoke deals," he said.