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Asian bond issuers: time is running out

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By Morgan Davis
06 Oct 2020

Asian borrowers looking to tap the international dollar bond market this year have only a small window of opportunity to raise funds. They should act quickly.

Few capital market professionals will remember this year fondly. Covid-19, which first emerged in December 2019 and has since led to huge changes in working patterns and financial market conditions, continues to dominate headlines internationally.

Asia’s capital markets were initially hard hit by the pandemic. But the region’s dollar bond issuers have bounced back and managed to hold their own, pushing out deals and — for the most part — skirting large-scale defaults and the financial ruin that a global pandemic can easily bring.

August and September were particularly busy, with nearly $23.8bn and $52.9bn raised from public dollar bonds in Asia ex-Japan, respectively. That stands in contrast to the $9.9bn raised in August 2019 and $36bn in September 2019, according to Dealogic.

But the deal window is rapidly closing — and issuers still on the sidelines risk losing out unless they get their bonds in motion quickly.

Many debt bankers in Asia view November 3, the date of the US presidential election, as a deadline of sorts. The closer we get to the election, the more volatility they expect.

US president Donald Trump, ever the unpredictable wild card for global politics, is expected to ramp up his negative rhetoric as the election nears. If recent polls are any indication of what is to come, the vote will be a close one. And if the results are disputed, global markets will be in for a long bout of uncertainty.

That means the onus is on borrowers — and the DCM bankers offering them advice — to put buffers in place now so they can tackle any difficulties they may encounter towards the end of the year.

Of course, bond market conditions are far from ideal, as a number of Asian borrowers have realised recently.

For instance, China Merchants Port Holdings Co (CMP), which raised $600m from a dual-tranche bond last week, had to pay up around 25bp and 37.5bp of premiums for its two tranches. That was a considerable concession considering just a month earlier, issuers were still sealing deals well inside of their existing curves.

It was a similar case for names like CCB Leasing, CDB Leasing and China Huarong Asset Management, all of which had to adjust their bond sizes and price expectations because of market volatility. The Chinese property industry also took a hit, following concerns over the repayment abilities of China Evergrande Group, one of the country’s largest and most indebted real estate developers.

The broader headlines also do not offer much optimism for potential borrowers.

Trump returned to the White House on Monday after, spending three days in hospital following his positive Covid diagnosis. Many other senior White House officials have since been confirmed as having the virus. In Europe, many countries are debating renewed lockdowns as cases of the virus tick upwards in what some are calling a second wave of infections. The uncertainty about travel, business and economic growth is only going to weigh on the market more and more as the pandemic spreads wider.

This means Asian issuers looking for funding would be better off taking action this month, rather than waiting for more calm. Any premium they may have to offer now could still beat investor demand a few weeks later.  

Of course, there are still borrowers that can, and will, sell dollar bonds in November and December. As past years have shown, some Chinese credits can sell a heavily anchored, club-style deal at the 11th hour before the Christmas holiday. Large state-owned enterprises and highly rated credits will also be able to court investors relatively easily, relying on friends and family support on deals.

But firms lower down the credit curve — or those that can’t easily find anchor demand — should plan ahead. Those with 2021 maturities that are yet to be tackled should also seek out funding now or risk facing difficulties in accessing the market closer to the end of the year. The clock is ticking.

By Morgan Davis
06 Oct 2020