Bigger deals are the new normal for Asian bonds
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Bigger deals are the new normal for Asian bonds


Larger deals and bigger new issue premiums will be the new normal for Asia ex-Japan as issuers adjust their debt funding strategies in the face of volatile markets. A pair of high profile bonds in the past week clearly illustrated this size-over-price approach, although bankers said that while it will become increasingly common, not everyone will adopt it, writes Rev Hui.

Activity in the region’s primary dollar bond market at the start of 2015 has been slower than in recent years, with non-sovereign issuers raising only a total of $6.65bn from five transactions. By the same time last year, there had already been 18 deals worth more than $11bn.

Despite the subdued volumes, the region has nonetheless already recorded a jumbo deal in the form of China Huarong Asset Management’s $3.2bn triple tranche offering (see separate story).

Huarong’s transaction surpassed pre-pricing expectations for a deal of around $1.5bn-$2bn. The issuer raised a far larger amount when it came on January 9, after offering generous pricing with a new issue premium of 40bp-50bp. Demand soared, with books closing at $15.5bn.

“A large part of the issuer’s decision to go big was prompted by their belief that markets are volatile and will only get worse,” said one Hong Kong-based head of syndicate on the Huarong trade.

Spreads in the region have widened since the start of the year, thanks to a series of macro concerns, as well as the first offshore bond default from a Chinese property developer, Kaisa. Five year spreads on the Markit iTraxx Asia ex-Japan Investment Grade Index have widened by 14bp since the start of the year.

“If it continues to widen, and it probably will, then you’re probably going to look back come the end of year and say what a good deal Huarong was, because whatever premium they paid now will look ridiculously cheap,” said the head of syndicate. “Going for size over price will definitely be one of the trends going into the rest of the year.”

Kexim shows way for Korea

With Huarong leading the way for Chinese issuers, Export Import Bank of Korea (Kexim) provided the example three days later for Koreans — the second most active group for dollar issuance in Asia. Kexim raised $2.25bn from a dual tranche offering split between a five year and 10 year, up from what had only been predicted to be a $1.5bn deal (see separate story).

Tapping the market with a bigger than expected deal, Kexim paid a new issue premium of between 5bp-8bp. That was far lower than the concession Huarong paid, but a syndicate banker in Singapore said Kexim’s deal would have the bigger impact as Korean issuers are famous for driving hard bargains.

“With several pulled deals last year, the Koreans have earned themselves an unwanted reputation for being extreme penny-pinchers and Kexim is trying to correct that image,” the Singapore banker said, adding that those deals that did happen were mostly priced flat to, or under, their curves. “The Korean pipeline is very easy to understand because they always come in bunches and with the biggest first. If big brother Kexim pays up, you can bet the others will start following suit.”

Woori Bank, which issued a $350m 2.625% 2020 bond on January 14, paid a new issue premium of around 10bp-15bp. Kookmin Bank, which is poised to tap the dollar market, is likely to do the same.


While the signs all point to issuers printing in larger sizes this year and trying to wrap up their financing in one go, one regional head of DCM said he would only advise this course of action to less established companies or those making their debuts. Those names would in any case have trouble retapping the market, he said, but there is also extra publicity and attention to be gained from executing larger trades.

Huarong, for example, has now bagged the title of the largest Reg S-only deal from Asia, and the DCM head, who was also on that trade, said the issuer had made it very clear that it wanted to make a statement.

“If you are Hutch [Hutchison Whampoa], you won’t even think about the extra publicity,” the banker said. “The only thing you will be thinking of is preserving your own curve or issuing in another currency where the economics could be better.”

Kexim was an exception thanks to its quasi-sovereign status, he said, which means it aims to achieve the best pricing but also to leave the door open for other Korean issuers.

He expects deal volumes this year to be roughly the same as last year, although with a possible drop in the number of deals executed. Multiple-tranche deals could become more common, while the new issue premium will hover around the 10bp-15bp range, at least for the first half of the year. The new issue premium for Asian bonds last year was estimated to be around 5bp-10bp.