Asia’s bond markets are frothing like never before, driven by record sales out of China by leading mainland state-owned enterprises (SOEs), as issuers look to lock in low interest rates while they can.
Issuance hit a record high in April, with corporates in Asia ex-Japan and Australia selling bonds worth $27.1bn in G3 currencies, surpassing the previous record of $26.2bn, set just three months previously. Chinese firms alone, coming off a strong first-quarter performance, accounted for more than half of the April total, led by Sinopec’s $5bn five-tranche sale in early April, and rival oil major CNOOC’s April 23 print, which included a $2.25bn 10 year print, the largest single dollar tranche ever completed by a Chinese corporate.
Bankers at the time warned that investors were showing signs of fatigue, as they struggled to digest a series of mammoth debt sales.
That may not deter issuers: debt capital market bankers in Hong Kong told Emerging Markets that CNPC was preparing its own sale of dollar-denominated bonds, slated for next week, that could raise upward of $5bn for the Beijing-based energy giant. State Grid Overseas Investment, which raised $3.5bn from own bond sale April 28, told investors it was looking to raise a further $3bn in the week starting May 5.
“Volumes are soaring, and for good reason,” said a leading DCM banker at a UK institution in Hong Kong. “China is going overseas, it has a huge appetite for capital, liquidity is very high, and interest rates remain low. I can’t see any reason not to expect issuance to remain high. Chinese issuers want access to international markets, and the authorities are happy to give their consent. It’s a great time to be in the business of selling Chinese corporate bonds.”
Most issuance remains in US dollars, and for two reasons. First, with US interest rates expected to trend up from the middle of 2015, firms in China — and across much of Asia — are looking to sell debt with tenors of three, five, or 10 years.
Second, the Chinese government remains pragmatic over the relative scale of the offshore renminbi (RMB) market. “Most major SOEs can’t issue internationally in China’s currency,” said a mainland born debt banker in Hong Kong. “It’s simply not a large enough currency yet. Maybe you could issue a $2bn bond max [in RMB] but you’d struggle to push it any further.” Issuance has also been hit by the sharp depreciation of the renminbi since the start of the year.
Even second-tier firms, in China and elsewhere across Asia, are getting on the act, with activity heightened by the fact that funding costs are widely expected to rise in the second half of the year. China Overseas Land and Investment goes on the road next week, while state run Indonesian energy firm Perusahaan Gas Negara is also preparing to issue its debut bond.
Dhaka-based Banglalink Digital Communications is also in the throes of issuing the country’s first international bond. When the sale closes May 6, Bangladesh’s second largest mobile telephony firm, owned by Egypt’s Global Telecom Holding, should have raised $300m worth of five year bonds at 8.875%. The deal was briefly delayed in mid-April after disagreements with investors, who struggled to price bonds in a country that has yet to issue any sovereign paper.