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Dollar DCM volume hits record in Asia

Sinopec equals previous biggest issuance; global investors maintain Asia focus.

Dollar-denominated debt capital market volume in Asia reached almost $27 billion in April, the highest monthly volume on record, bolstered by a $5 billion, five-tranche bond from Sinopec, the third-largest dollar bond in the region (ex Japan) on record. 

The Chinese oil and gas company issued its bond via a consortium of 13 bookrunners to post the largest Asia (ex Japan) dollar-denominated bond since Hutchison Whampoa’s $5 billion issue more than 10 years ago. It is also the largest global oil-and-gas-sector bond from an Asian issuer on record, according to data from Dealogic. 

Duncan Phillips, head of Asia bond syndicate at Citi, says: “Within a very busy first quarter, key highlights were the overall rise in volumes, jumbo corporate and sovereign offerings, and a meaningful rise in bank capital financings. We expect to see continued activity across these areas through 2014.”

Sinopec’s five-tranche deal consists of three fixed-rate tranches featuring tenors of three, five and 10 years for a combined total of $3 billion. The rest was split into two floating-rate note tranches with tenors of three years and five years, respectively. 

Among other notable deals to price in April were Tencent Holdings’s $2.5 billion bond led by a consortium of 11 bookrunners, the largest technology sector bond in Asia (ex- Japan) on record, and CNOOC Nexen Finance’s $4 billion dollar-denominated bond, the fourth-largest dollar bond on record in the region. 

Asia focus

These record volumes underline the fact that global investors remain keenly focused on Asia, despite continuing worries about a slowdown in China and India. One banker points out that the broader development of the local bond market has improved access for all investors. In recent years several international investors have also set up offices in Asia to strengthen their local presence, building the market’s momentum.  

Overall dollar-denominated Asia (ex-Japan) bond volume stands at a record $67.8 billion so far this year, up 2% year on year. Chinese issuers account for 41% of total volume, with $27.5 billion, compared with $22.8 billion for the same period last year. 

Citi leads the Asia (ex Japan) dollar-denominated DCM bookrunner ranking so far this year, with a 13.6% market share, followed by HSBC and Bank of America Merrill Lynch, with 11.6% and 8.5%, respectively.

Phillips says: “As rates rise over the next 18 months, we believe issuers are likely to be ever more focused on refinancing and liability management exercises. We also expect to see more opportunistic issuance – modest-sized, quick-fire transactions to take advantage of specific liquidity pools at specific points in time. Floating-rate note issuance is also back on issuers’ agendas in Asia as demand for the format has increased substantially. These days, a FRN component is regularly included in large multi-tranche offerings.”

amit sheopuri
Amit Sheopuri, Citi

Amit Sheopuri, co-head DCM Asia at Citi, adds: “Asian issuers are increasingly more savvy – 10 years ago you could count the number of truly world-class bond issuers from Asia on one hand. Now you need all your fingers and toes and more.” The latest volume milestones come after international bond issuance from Asia (ex-Japan) broke the $100 billion mark for the first time last year. 

Economic expansion and asset growth across the region are driving a period of sustained market growth, with money flowing in from institutional investors and wealthy individuals alike. Many corporate borrowers are looking to the bond markets in preference to bank loans, which are being squeezed across the region. 

A report last year by Greenwich Associates pointed out that growth has been influenced by a number of market forces that have combined to drive Asian institutions towards the safety of government bonds from G7 countries.

The development of electronic trading across the region is also gathering pace as a result. Greenwich says that the steady development of the region’s fixed-income market is best exemplified by the growth of domestic-currency bond markets and by the increasing relevance of local Asian banks as a source of trading activity. During recent years of often extreme market volatility, the report points out, Asian investors gravitated to G7 instruments as part of a broad flight to quality, and trading volumes in Asia have been pushed higher by investors’ increased appetite for G7 government bonds.

Meanwhile, Australian domestic DCM volume reached $35 billion in the first quarter, its lowest first-quarter level since 2009 and down 8% from the $38.1 billion raised in the first quarter last year. The finance sector accounted for 76% of total Australia domestic DCM volume, with $26.4 billion in the first quarter of 2014, down from the 93% recorded in the first quarter of 2013 ($35.4 billion) and the lowest first-quarter share since 2003 (62%). 

In contrast, Australia international DCM reached $26.1 billion, up 12% year on year ($23.4 billion) and the highest first-quarter volume since 2012 ($42.4 billion).

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