Corporations across Asia will be looking to issue 30-year bonds over the next month following the success this week of Indonesian power company PLN’s 30-year deal, which achieved record low pricing.
Perusahaan Listrik Negara (PLN) issued a US$1 billion senior unsecured bond early on October 17. The deal was priced at 98.514% with a coupon of 5.25%, the lowest ever funding achieved by an Indonesian corporate in the 30-year space.
Thai energy company PTT was expected to price a US$1 billion 10-year and 30-year dual tranche bond overnight on October 18, and according to bankers, more corporates will likely follow, not just in Indonesia and Thailand but across the Asia Pacific region.
“You could well expect people to try to take advantage of where interest rates are. Not just Indonesia and Thailand, I think it’s an Asian thing. You could find a lot from Asean, selectively out of India and selectively out of China,” said one head of Asia debt origination at a global bank.
“We’ll see it over the next couple of weeks because no one wants to get into December and find themselves stuck, so we’re going to see more in October and maybe November,” he added.
The trend towards longer dated issuance out of Asia has steadily increased. In Asia ex Japan there were four corporate US dollar-denominated 30-year deals in 2009, seven in 2010, nine in 2011, and year-to-date there have been 12 deals, according to Dealogic.
In addition, while in 2009 all four deals were issued by corporates in Hong Kong, there has been a steady diversification of issuer nationality. This year, corporates from China, Hong Kong, India, Indonesia, Malaysia, Singapore, South Korea and Thailand all issued 30-year debt.
This trend is due in large part to an intensifying global search for yield which has increased investor appetite for longer-duration bonds, despite higher supply this year. In addition, the demand has pushed down yields, meaning pricing has become increasingly attractive from an issuer perspective. This is a trend that is likely to continue, according to analysts, as long as rates stay low.
“Given low all-in yields, I think the trend can gather momentum and continue. The risk is that long-dated rates sell off, increasing the all-in yields. But at the moment, rates are still very attractive and corporates are likely to continue to term out their funding,” said Krishna Hegde, credit strategist at Barclays.
Other driving forces behind the expected spate of deals over the next month or so is the fact that the cost of insuring bonds in Asia ex-Japan is at 117.5 basis points and headed for a four-week low, according to the Markit iTraxx Asia index, quoted by Bloomberg. In addition, the year is coming to a close which will push corporations to get deals done sooner rather than later.
Some bankers believe that there is demand not only for investment grade 30-year debt, but that some high yield names could also come to the market. Only three 30-year high yield bonds have been issued in Asia ex Japan since 2007, according to Dealogic, all from Indonesian corporates.
Indonesian company Majapahit Holding issued a US$1 billion 30-year bond on June 21, 2007. Pertamina issued a US$500 million 30-year deal on May 20 last year, and PLN was the third issuer. According to the head of Asia debt origination, the market could see a debut 30-year deal from a Chinese high yield issuer before the year is out.
“[We are most likely to see] strong investment grade names, energy names and conglomerates. In addition we could see some high yield selectively. You could see some good quality ‘B’ sales. Largely high yield has come out from China and Indonesia, so we could see names from those countries,” he said.
While others agreed that established investment grade corporates are the most likely to tap the market, not everyone is expecting to see any long duration offerings from the high yield space.
“Issuers that can get issue long-dated bonds are typically established investment grade corporates that are asset heavy – spanning the gamut of oil and gas companies, infrastructure, telecom and large conglomerates. I would say a 30-year high yield corporate deal is very unlikely,” said Hegde.
“Long tenor high yield deals are just not really possible unless it’s some kind of perpetual. Only a handful have managed to do 10 years, so I really doubt it,” agreed one vice president of debt origination at an Asian bank.
Despite the fact that deals longer than 30 years have been seen in the past in Asia’s debt markets, commentators agree that 30 years is likely the longest duration to be issued in the coming months.“I suspect 30 years will be the longest right now, longer ones can happen but I don’t think we’ll see them this year,” said the Asia head of origination.