Despite the volatility in global financial markets, Asia’s dollar bond markets stayed busy last week, with four issuers — First Pacific, Hang Lung Properties, IOI Corp and Korea Exchange Bank — printing bonds. Collectively, they raised $2.2 billion, mainly from Asian investors. Korea Exchange Bank was the only issuer to market its deal to onshore US investors.
With markets so volatile, companies are favouring Reg-S bond offerings for the shorter execution period, and also because there is plenty of demand in Asia, according to bankers.
“We are seeing an extremely strong bid from Asia and this is supporting issuance,” said one banker. Asian investors were allocated 93% of Hang Lung Properties bond, 84% of First Pacific, 79% of IOI Corp and 55% of Korea Exchange Bank’s bonds.
According to syndicate bankers, big US fixed income buyers such as Goldman Sachs Asset Management, Pimco, T Rowe Price and the UK’s Ashmore have also been beefing up their Asia presence.
Of the four deals that closed last week, two were unrated. Although fund managers often say that they prefer bond deals to be rated — as this puts pressure on companies to maintain their ratings — the lack of them did not appear to dampen demand. First Pacific raised $400 million through a seven-year bond and Hang Lung Properties closed a $500 million 10-year bond, attracting $4.6 billion and $4.7 billion worth of orders, respectively.
Hong Kong-based investment holding company First Pacific, in particular, was seen as a test of investors’ demand for riskier credits as it was selling its first senior unsecured bond. The company has issued bonds in the past, but they have all come with share pledges against them as security.
First Pacific holds a 25% stake in Philippine telco PLDT, a 59% stake in Metro Pacific Investments, a 50.1% stake in Indofood and a 31.3% stake in Philex. “This was a landmark deal for First Pacific,” said one source. HSBC and Mizuho were joint bookrunners.
However, despite the strong demand for First Pacific’s bond, few bankers seem to be predicting a recovery in the high-yield market, particularly in light of short seller Citron Research’s allegations against Evergrande Real Estate, which is expected to have a knock-on effect on the Chinese property sector.
While demand for investment-grade Asian credits has been buoyant, the Chinese high-yield primary market has been shut since Baoxin Auto and China Zhengtong Auto pulled their high-yield dollar bonds back in May.