US market: open for more Asian bonds
GlobalCapital, is part of the Delinian Group, DELINIAN (GLOBALCAPITAL) LIMITED, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 15236213
Copyright © DELINIAN (GLOBALCAPITAL) LIMITED and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement
Asia

US market: open for more Asian bonds

American flag US

Now more than ever, the 144A bond market offers opportunities for Asian borrowers and eager investors

It is in times of market volatility that the true importance of a diverse pool of investors comes through. That has been the case this year — with the US 144A market becoming more critical than before.

The 144A bond market, which gives access to US investors, has seen its relevance to Asian issuers ebb and flow over the years.

Before the pandemic, 144A borrowing was generally used by the few issuers that had established 144A programmes. But changes in market behaviour over the last 18 months has created new dynamics, making the US investor base more appealing.

During past volatility, Asia’s borrowers relied on the strength of the Reg S market. That was particularly the case for Chinese issuers, which could easily leverage the wealth of demand from Mainland Chinese investors to push their deals through.

In many ways, the resiliency of the Reg S market has been impressive. The market has matured to a point that Asian issuers do not need to rely on the West. Instead, deals trickle out of Asia even when the US or European markets are closed. That was the case when the Covid-19 pandemic went global at the beginning of 2020.

But the value of the 144A market is increasingly showing through.

US investors have become more aggressive in the last year or so, emboldened by the fiscal support the government has rolled out. In a near-zero interest rate environment, investors want yield and are willing to take on some risk on their portfolios for that additional premium.

This makes emerging market debt, including from Asia, suddenly appealing to fund managers that would otherwise be reluctant to take on these bonds.

Asia’s borrowers should capitalise on the opportunity.

Having the addition of a 144A investor pool presents clear benefits for borrowers, assuming they can stomach the cost and time associated with becoming 144A eligible.

The additional investors give issuers the opportunity to strengthen the quality and diversity of their investor base. This will serve them well as they get ready to face up to more bouts of turbulence in the months ahead.

It can also help them find tighter prices for their trades, especially given US investors are eager to take on relatively higher yielding instruments from Asian companies over low yielding paper from domestic or European issuers.

Asian issuers have noticed this change. Many are listening to their syndicate teams that are advising them to branch out into 144A trades.

As of September 20, Asia ex-Japan borrowers have raised $88.8bn in the public 144A market, according to Dealogic — already surpassing full-year 2020 volumes of $86.7bn. Of the 144A deals so far this year, about $11.2bn was raised by Chinese issuers.

In comparison, $68.4bn was raised by Asian issuers in 144A formats in 2019 and $59.8bn in 2018.

Perhaps more importantly, it’s not just a numbers story this year. It’s also about the types of Asian firms heading to the US market, given 144A issuance tends to come from repeat issuers.

Year to date, 21 Asia ex-Japan borrowers have made their debut in the 144A market — exceeding the 10 that debuted in all of 2019 or the eight that sold their first 144A deals in 2018, according to Dealogic. In 2020, eight Asian firms sold their first 144A bonds, including three from China — a notable number compared to the usual dearth of US market borrowing from the country.

India’s JSW Steel is one of the most recent debut 144A borrowers. Last week, the company sold a $500m sustainability-linked 10 year bond and a $500m conventional five year note. The deal was the borrower's first 144A trade. A banker on the transaction said the issuer had long been advised to consider 144A formats, but it did not previously find the market appealing enough to pursue the cost and hassle of getting 144A approval.

But the additional pool of US investors paid off for JSW Steel. About 19% of the shorter-dated bonds were allocated to US investors, and 29% of the longer dated tranche.

The US debt market may, of course, not be for all. But as the unpredictability of the past 18 months has shown, having back-up funding options in the bag is never a bad idea.

For Asian issuers, the 144A market — with the receptive US investors — may well be the way forward.

Gift this article