Rock-bottom rates drive soaring Asian issuance of dollar bonds

Companies and governments in Asia have tapped dollar bond markets at a blistering pace in the opening weeks of 2021, taking advantage of ultra-low rates to raise funds for acquisitions and cover the costs of the coronavirus crisis.

Issuance of dollar bonds in the region climbed to more than $45bn in the first two weeks of the year, according to Dealogic. That is almost three-quarters of the total amount raised across the whole of January 2020.

“What’s driving the volume is that rates are creating a very opportunistic market for issuers locking in very good long-term funding,” said Ed Tsui, head of Asia-Pacific debt syndicate at Deutsche Bank, referring to rock-bottom US interest rates.

The bumper crop of dollar bonds is set to continue in the coming weeks. Chinese ecommerce group Alibaba is expected to tap debt markets for as much as $8bn this month, according to people directly familiar with the matter.

The surge in issuance comes despite predictions that corporate fundraising would slow in 2021 following last year’s record levels.

Among the blockbuster issuance this month was a $2.5bn debt sale from South Korean chipmaker SK Hynix. The dollar bond, the biggest ever sold by a non-financial company in the country, attracted orders worth almost five times the issuance size. It will be used in part to finance the group’s $9bn acquisition of Intel’s Nand memory business.

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

That demand helped the Indonesian government sell the 10-year tranche of a $3bn dollar bond this month at a record-low interest rate of 1.9 per cent. The issuance, sold alongside a €1bn bond, will be used in part to fund a Covid-19 vaccination drive in the country of more than 270m people.

In Japan, where bankers have described all recent dollar debt issuance by local companies as heavily oversubscribed, Nippon Life Insurance last week completed a $1.6bn offering of 30-year subordinated notes at an all-time low of 2.75 per cent.

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The pandemic, which has had a disastrous effect on the travel industry, has also driven bond issuance from the likes of Singapore Airlines. The carrier, which has been forced to operate at a sliver of its normal capacity, raised $500m from its first dollar debt sale.

Bankers in Tokyo said that dollar bond issuance by Japanese businesses had begun the year at a “very high pace”.

Companies were encouraged, said one banker involved in recent deals, by demand from hedge funds, money managers and private banks — the typical market for dollar issuance in Asia. Big Japanese asset managers, the banker added, tended to prefer buying such bonds in the secondary market.

In addition to Nippon Life, a combined $7bn of bonds have been sold in January by Toyota Motor Credit, Sumitomo Mitsui Financial Group and the Japan Bank for International Cooperation. All of those offers were heavily oversubscribed.

“From the Asian corporate perspective, the market has continued to be hot and these good supply-demand technicals will continue,” said a senior debt capital markets banker at Morgan Stanley in Tokyo. “Companies will be incentivised to continue issuing in this quarter.”

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