Asian borrowers outside Japan are on track to beat last year’s record $130 billion of dollar bond issuance, according to data compiled for Emerging Markets by Dealogic.
Issuance so far this year up to 3 May has reached $74.33 billion, compared with $52 billion for the same period last year. At that rate the region will beat last year’s $130 billion.
The momentum comes despite widespread expectation of the so-called great rotation away from debt markets into equities, but it also fuels fears of a bubble developing in emerging market debt.
The trend was illustrated by a $4 billion bond issue from CNOOC, the Chinese state-owned oil company, which priced on Thursday night – the largest international bond issue from Asia in a decade. Despite its size, people close to the deal said it had achieved an initial order book of $24 billion. The deal followed bonds worth $3 billion apiece from each of Sinopec and CNPC.
Asia’s high-yield market, which has been largely moribund since the global financial crisis, has staged a revival, once again dominated by Chinese deals. According to Dealogic, year to date high-yield issuance actually stands at $19.4 billion, compared with $6.74 billion for the whole of 2012.
“Even if the market slows down a bit, we could end up in excess of $40 billion of high-yield issuance,” said Herman van den Wall Bake, head of fixed income capital markets for Asia at Deutsche Bank. “That would be by far the busiest year on record.”
Van den Wall Bake attributes the boom in high-yield issuance to “a drop in spreads, particularly in China. Last year there were concerns about a hard landing in China, and the real estate space in particular.
“Since then we’ve seen that China’s economy is still growing at a healthy rate, real estate developers are performing well and have seen borrowing costs drop 200 to 300 basis points in a year, and you no longer have the uncertainty of a transition of power in China.”
Rogerio Bernardo, director on the bond syndicate desk at RBS in Singapore, added: “On the demand side, the technicals are very good for asset managers and hedge funds. We’ve seen a lot of inflows into fixed income portfolios in Asia.”
He highlighted US and European fund managers establishing offices in Asia, and the growth in private banking wealth there. “There is a lot of cash that needs to be put to work.”
In other emerging markets, issuers have benefited from renewed appetite for unfamiliar credit. In Africa, debut international issues from Rwanda and Zambia and a debut dollar issue from Morocco are shortly to be followed by a new international deal from Ghana. All have been exceptionally well received.
- Follow us on twitter @emrgingmarkets