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Asia CommentGC Asia View

Asia ex-China bonds: time for a renaissance

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The slew of negative China-related news could unleash fundraising opportunities for bond issuers from the rest of Asia

The year so far has not been an easy one for many Chinese issuers. Aside from the pressure stemming from Covid-19 on global economic recovery, markets have also had to navigate a steady supply of bad news from China, impacting sentiment across both bonds and equities.

Earlier this year, China Huarong Asset Management Co, one of Asia’s biggest offshore bond issuers, caused widespread volatility with an unexpected delay in releasing its 2020 financial statement. More recently, liquidity crisis deepened at another prominent name in Asia DCM — leading property developer China Evergrande Group — raising default fears and concerns of a contingent effect across the country’s, and perhaps even the region’s, high yield market.

These come as Beijing remains committed to deleveraging the financial system and preventing the real estate market from overheating.

Its crackdown on the technology industry has also continued, while other fast expanding sectors, such as private tutoring, were also brought to heel in recent months.

This was on top of the US regulators’ heightened scrutiny of China-related investments and the rocky geopolitical relationship between Beijing and Washington.

The developments have naturally made many investors re-evaluate their China, as well as their broader Asia, debt portfolios. But that doesn’t mean all is over for the region’s bond issuers. While concerns of a slowdown in recovery of the second largest economy in the world and a slew of bad news from Asia’s largest bond market continue to dampen sentiment, there are still some silver linings.

The linings are largely outside of China, as evidenced by the recent performance of bonds in Asia.

Axis Bank, for example, brought a rare offshore additional tier one deal from India, while establishing a much-needed benchmark for the country’s sustainable bond market last week.

Fellow Indian issuer Adani Green Energy got a nearly five times covered order book for its bond return, despite opting for a weaker issuance structure compared to its outstanding bonds. From the Philippines, AC Energy Corp, a unit under conglomerate Ayala Corp, found success in its latest perpetual deal that came with an aggressive fixed-for-life format.

Also last week, the government of Maldives also reopened an existing sukuk to bring the bond to an index-eligible size of $500m — even though it had been hit recently with a rating downgrade by Moody’s to triple-C.

At the same time, an almost 13 times covered order book for lithium battery manufacturer Contemporary Amperex Technology Co showed there is still demand for Chinese credits, provided they are strong names and come from the right sectors.

These are pivotal times for Asia’s bond market, especially for south and southeast Asian credits looking to tap international investors. Fundraising opportunities abound — but only if issuers are nimble and quick to capitalise on the open window.

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