Asia-Pacific banks' bond issuance in July more than doubled over the prior month due to a few large deals, though the outlook remains weak amid rising interest rates.
Banks in the region raised $11.61 billion from bond issuances in July, more than double the $5.56 billion raised in June, according to data compiled by S&P Global Market Intelligence. On the equity side, banks raised $430 million, taking the aggregate capital raised in July to $12.04 billion from $6.42 billion in June.
"We continue to expect issuance to remain slow for the region as a whole," said Andy Suen, portfolio manager and head of Asia excluding Japan credit research at PineBridge Investments. "Major financial institutions in the region have strong access to their respective local markets. We expect slower gross issuance and net issuance in the offshore market for this year."
Most issuers remain cautious about raising bonds, as rising interest rates, inflation and geopolitical tensions make the growth outlook uncertain. In July, the Asian Development Bank cut its growth forecasts for developing Asia to 4.6% from 5.2% for 2022, citing worsened economic prospects due to slower expansion in China, more aggressive monetary tightening in advanced economies and the fallout from the Russian invasion of Ukraine. It raised its average inflation forecast for the region to 4.2% from 3.7% for 2022.
The month-over-month surge in Asia-Pacific banks' debt raising in July mirrored a trend seen in U.S. banks, and was driven primarily by a few billion-dollar bond issuances: Mitsubishi UFJ Financial Group Inc.'s $4.50 billion total loss-absorbing capacity bond issuance, Westpac Banking Corp.'s $1.04 billion issuance and Asian Development Bank's $1.02 billion issuance. Hong Kong's The Bank of East Asia Ltd. was the sole issuer of convertible bonds in July, worth $250 million.
Despite the month-over-month spike, banks' bond issuance remains slow, compared with $16.01 billion raised in July 2021.
Local-currency bonds
Banks in Asia-Pacific appear to be turning to local-currency bond markets as the U.S. dollar stays strong.
In July, 18 of the 23 nonconvertible debt issues were denominated in local currencies, Market Intelligence data showed. Ten of the local-currency bond issuances during the month were completed in Southeast Asia, including four from Indonesian banks.
Near-term issuance will remain slow until the U.S. dollar interest rate stabilizes and the offshore funding environment becomes more favorable, Suen said.
"The issuers generally have strong access to local funding markets and are not willing to pay up for higher new issue premiums currently demanded by offshore hard currency bond investors," Suen said.
Mitsubishi UFJ Financial, KB Kookmin Bank, Woori Bank and Malayan Banking Bhd. issued U.S.-dollar denominated bonds.
Suen expects U.S.-dollar-denominated bonds to come only from banks with a higher proportion of overseas businesses, such as Japanese lenders.