Friday, September 22, 2023

Lowest rates spur surge in Asian dollar bond issuance

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Asian companies and governments exploited dollar bond markets at a breakneck pace in the first weeks of 2021, taking advantage of ultra-low rates to raise funds for acquisitions and cover the costs of the coronavirus crisis.

Dollar bond issues in the region climbed to more than $ 45 billion in the first two weeks of the year, according to Dealogic. This represents almost three quarters of the total amount collected all january 2020.

“What is fueling the volume is that rates create a very opportunistic market for issuers locking in very good long-term funding,” said Ed Tsui, director of the Asia-Pacific debt syndicate at Deutsche Bank, referring to the lowest US interest rates.

The bumper crop of dollar bonds is expected to continue in the coming weeks. Chinese e-commerce group Alibaba is should exploit the debt markets for up to $ 8 billion this month, according to people familiar with the matter.

The skyrocketing emissions come despite predictions this corporate fundraising would slow down in 2021 after last year’s record levels.

Among the blockbuster shows this month was a $ 2.5 billion sale of debt by South Korean chipmaker SK Hynix. The dollar bond, the largest ever sold by a non-financial company in the country, attracted orders worth almost five times the issue. It will be used in part to finance $ 9 billion acquisition of Intel Nand memory activity.

Mr. Tsui said the low rates have prompted many issuers to refinance their existing debts to longer maturities. “Investors are absolutely opportunistic” and have a strong appetite for longer-term debt, he added.

The demand helped the Indonesian government sell the 10-year tranche of a $ 3 billion bond this month at a record interest rate of 1.9%. The issue, sold with a bond of 1 billion euros, will be used in part to finance a Covid-19 vaccination campaign in the country of more than 270 million inhabitants.

In Japan, where bankers have described all recent dollar debt issuance by local firms as heavily oversubscribed, Nippon Life Insurance completed a $ 1.6 billion 30-year subordinated note offer last week. all-time low of 2.75%.

The pandemic, which has had a disastrous effect on the travel industry, has also resulted in the issuance of bonds by Singapore Airlines. The carrier, which has been forced to operate at a slice of its normal capacity, has raised $ 500 million since its first sale of dollar debt.

Tokyo bankers said dollar bond issuance by Japanese companies started the year at a “very high pace.”

Firms have been encouraged, said a banker involved in recent transactions, by demand from hedge funds, fund managers and private banks – the typical market for dollar issuance in Asia. Large Japanese asset managers, the banker added, tended to prefer buying such bonds in the secondary market.

Besides Nippon Life, a total of $ 7 billion in bonds were sold in January by Toyota Motor Credit, Sumitomo Mitsui Financial Group and the Japan Bank for International Cooperation. All of these offers were heavily oversubscribed.

“From the perspective of Asian companies, the market has continued to be warm and these good technical aspects of supply and demand will continue,” said a senior debt capital markets banker at Morgan Stanley in Tokyo. . “Companies will be encouraged to continue issuing this quarter.”

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