More Asian companies are marketing dollar bonds to US investors and giving Asian investors the cold shoulder.
Hyundai, which sold a dollar bond through a US subsidiary on Wednesday, became the latest Asian borrower to start marketing a deal during New York hours, ignoring the Asian investor base.
Hyundai Capital America started marketing the bond around 10.30pm Hong Kong time on Tuesday, when few Asian fund managers would have been at their desks. Baidu, which had sold a $1 billion bond last week, also started marketing its bond at night in Asia.
“Recently, there are increasingly more Asian deals launching and pricing in New York time rather than Asian time, given a better risk appetite there,” said Arthur Lau, portfolio manager at Pinebridge. “The tide has turned. The domestic situation in the US is much more upbeat than Asia and US investors are willing to take on more risk. In Asia, we are surrounded by negative sentiment risk at the moment.”
Hyundai Capital America provides auto financing for Hyundai and Kia dealers in the US, and investors looked at it as a US entity because the group’s Korean parent company, Hyundai Motor, is not guaranteeing the bonds. In contrast, Baidu is listed in the US, but most of its revenues are from China. Both bonds tightened in secondary markets, fuelled by demand from Asian investors.
There have been pockets of demand in Asia — as shown by Korea’s SK Innovation — which on Tuesday sold a $350 million bond arranged by Citi, which attracted $2.7 billion of demand.
However, broadly, demand in Asia has been poor compared to the US and this is borne out in the volumes. According to Dealogic, Asia ex-Japan debt volumes, including local currency and dollar bonds, chalked up $32 billion in July, less than half the $65.5 billion raised during the previous year. This is the lowest monthly volume since December 2010. In contrast, US-marketed investment grade volume totalled $83.6 billion in July, a 6% rise from the previous year and the biggest July volume on record.
Investors continue to sell Asian emerging market bonds. According to data from Deutsche Bank tracking inflows into local currency markets in six Asian countries — Indonesia, Malaysia, Thailand, Korea, India and the Philippines — there were inflows in all six countries from January to April. But this trend reversed from May to June, with outflows seen in India, Thailand, Indonesia and Malaysia. India and Thailand saw the biggest outflows of $4.5 billion and $3.2 billion respectively.
“The fundamental outlook for Asian credits is deteriorating, so we have seen outflows from Asian bonds. Meanwhile, there is also a meaningful pent-up supply of new bond issues, “ said Viktor Hjort, head of Asia fixed income research at Morgan Stanley. “Demand for local currency bonds also depends on investors’ views on the currency and it’s fair to say that those currency views have deteriorating.”
Despite the dour sentiment in Asia, debt bankers are predicting busy months after the August break, when companies start reporting their earnings. “We think that September and October could be very busy. We are in the deepest darkest part of summer. We could see some of the frequent borrowers take advantage over the next two weeks,” said one Hong Kong-based senior debt banker.
