After what was a surprisingly busy summer, Asia’s debt markets are in full swing. The holidays are unfortunately over, people are back at their desks and Asia’s bond markets have returned with a vengeance.
Debt volumes this year have touched historic highs — US dollar bond issuance from Asia excluding Japan has already hit $87 billion according to Dealogic, easily exceeding the $77.5 billion seen in 2011. And at least $5 billion worth of supply is expected to hit the market in September.
“Yesterday was the second busiest day in the US market,” said one Asia syndicate banker on Wednesday. “We saw $5 billion printed during August, so I don’t think it was all that quiet, but summer is over and September is historically a busy period for the bond markets,” he added. “Equity markets have been quite soft, but yet it has been busy. We’re seeing a slight disconnect and taking advantage of that.”
In its credit research report released this week, J.P. Morgan revised its full year forecast for US dollar bond issuance for Asia to $95 billion, up from its previous estimate of $80 billion as supply has been coming at a much faster pace than it expected, driven by debut issuers and companies looking to fund opportunistically.
“Besides increased investor appetite, the sweet combination of low treasury and tight credit spreads is a big pull factor for corporates to lock in low funding costs,” said the J.P. Morgan report. “If the market remains conducive, we would not be surprised if new issuance eventually hits the $100 billion mark,” it added.
Markets were off to a rocking start this week with OCBC Bank printing a $1 billion tier-2 bond early Wednesday morning. It was followed shortly by SP Power Assets’ $500 million bond and Korea Development Bank’s dollar benchmark.
“Investors are looking to take meaningful exposure to bonds,” said another debt banker. “The primary market allows them to do so, while secondary market liquidity is thin.”
Further supply waiting in the wings includes Hong Kong developer Sino Land, which kicks off investor meetings in Singapore today, before moving on to Hong Kong. DBS and HSBC are the arrangers. Following Moody’s upgrade of South Korea, a number of Korean issuers are rushing to market, including Korea Expressway, which has hired Bank of America Merrill Lynch, Deutsche Bank, Royal Bank of Scotland and J.P. Morgan to arrange a bond deal.
In Thailand, PTT Global Chemical started investor meetings in Asia on Wednesday and will move on to London on Friday and conclude in the US next week. Barclays, Goldman Sachs, Royal Bank of Scotland and Standard Chartered are arranging the meetings. The company is expected to tap the market for $500 million, though the size could go up if there is demand, according to a source. Elsewhere in Thailand, Bangkok Bank is said to have mandated Morgan Stanley to arrange investor meetings.
SP Power Assets
The high-grade market continues to attract demand from investors despite tight pricing — as reflected by SP Power Assets, which announced its 10-year US dollar benchmark on Wednesday morning and saw its books oversubscribed within an hour. Orders swelled to $1.75 billion after lunch and finally closed with $2.25 billion of orders.
The initial guidance was Treasuries plus 130bp and the final guidance was Treasuries plus 115bp to 120bp, with the bonds pricing at the tight end — at Treasuries plus 115bp, 15bp inside of initial guidance.
SP Power Assets priced through its Temasek-linked comparables, SingTel and Port of Singapore Authority (PSA). The PSA 2021s were trading at Treasuries plus 108bp, or Treasuries plus 136bp on a curve-adjusted basis, while the SingTel 2021s were trading at Treasuries plus 115bp, or Treasuries plus 132bp on a curve-adjusted basis. This meant that the SP Power Assets bond priced over 15bp through its relevant comparables.
The Temasek 2023s were trading at Treasuries plus 75bp, so the new SP Power Assets bonds came about 40bp back of them. However, Temasek’s bonds had priced at Treasuries plus 100bp, which put SP Power 15bp back of them on a spread basis compared to initial pricing.
Asian investors were allocated 60%, European investors 29% and offshore US investors 11%. By investor type, fund managers were allocated 50%, banks 20%, the public sector 12%, pension and insurance funds 12%, and private banks 6%. A total of 144 accounts participated.
The coupon was fixed at 2.7% and the notes were reoffered at 99.765 to yield 2.727%. The bonds mature on September 14, 2022. DBS, Deutsche Bank and HSBC were the bookrunners. SP Power Assets is rated Aa3 by Moody’s and AA- by Standard & Poor’s. It is the sole provider of electricity transmission and distribution in Singapore and its parent, Singapore Power, is wholly owned by Temasek.
OCBC Bank early Wednesday morning pushed out an aggressively priced $1 billion tier-2 issue. The initial guidance was Treasuries plus 270bp and this was refined to Treasuries plus 260bp with the bonds priced at Treasuries plus 255bp, about 15bp inside of initial guidance.
On a curve-adjusted basis, OCBC’s outstanding bonds maturing 2022 were trading at a spread of 253bp and the new OCBC bonds came at 255bp, so there was virtually no new issue premium. This was a good outcome for the issuer — as it was able to raise $1 billion at a tight spread. However, it was a less favourable outcome for investors, as the bonds widened to Treasuries plus 263bp/260bp in secondary markets on Wednesday, prompting criticism it was too tightly priced.
The deal was a rare issue from a bank with rock solid ratings (OCBC Bank is rated Aa1/AA-/AA-). As a result, the borrower was able to command pricing and, according to a source, priced through the Japanese banks and at the tightest spread seen for a bank capital deal out of Asia this year. Its Singaporean rival bank DBS had priced its $750 million tier-2 issue at Treasuries plus 260bp, and OCBC came 5bp inside of that.
The deal attracted an order book of more than $3.6 billion from over 220 accounts. Asian investors were allocated 55%, US investors 26% and European investors 19%. Fund managers were allocated 52%, private banks 24%, banks 15%, insurance and other investors 9%.
The coupon was fixed at 3.15% for the first five-and-a-half years and resets to 227.9bp over the prevailing five-year mid-swaps after that. The bonds mature March 11, 2023 and are callable on March 11, 2018. The notes were reoffered at 99.905 to yield 3.169%. OCBC, Bank of America Merrill Lynch and J.P. Morgan were joint bookrunners.
More bank capital deals are expected out of Asia — with rumours of a Hong Kong bank looking at a tier-2 issue. Meanwhile, a number of European banks such as ABN Amro have also hit the market with tier-2 issues that target Asian investors. In the Singapore dollar corporate hybrid space, mid-cap company Ezion expected to tap the Singapore dollar bond market with a small hybrid. Meetings concluded on Tuesday and ANZ and DBS were the arrangers.