Asia-Pacific banks' debt issuance volumes surge to 16-month high in April

Asia-Pacific banks' aggregate debt issuance volumes in April surged to the highest level in at least 16 months, thanks to multiple billion-dollar offerings from mainland Chinese banks.

In aggregate, the region's banks raised $33.86 billion in debt securities in April, more than twice the $15.95 billion in the same month a year ago, according to data compiled by S&P Global Market Intelligence on a best-efforts basis. The April monthly aggregate was also significantly higher than the $18.46 billion that the region's banks raised in March.

The aggregate debt figures covered in the analysis include bonds, senior debt and preferred securities.

Issuance volumes in the coming months will depend on US Fed's possible rate cuts and issuers' refinancing needs, analysts said.

"We think the market volume will pick up as the interest rate hike cycle officially ends and [the US] Fed starts to cut rates," said Jason Ho, senior managing director and Asia leader at investment bank FTI Capital Advisors. "If rates remain high for a prolonged period, the expected volume will be marginally higher YOY subject to the refinancing needs of issuers."

The US central bank has kept the benchmark fed funds rate in the 5.25% to 5.50% range since last July. It decided to hold the rates in the same range in its most-recent meeting on May 1. In addition, the latest, better-than-expected economic data and hawkish commentary from the policymakers have reduced the likelihood of a rate cut at the next policy meeting in June.

Demand for debt remains strong due to undersupply in the region, barring South Korean and Australian issuance volumes, Ho said. Supply, on the other hand, will depend on the expectation of rate cuts, which will be priced into interest rates.

Driving the surge

Mainland Chinese banks are likely to continue driving bank debt issuance volumes in the region as they rush to meet total loss-absorbing capacity (TLAC) requirements, analysts said.

Led by Bank of China Ltd., major mainland Chinese banks raised more than $23 billion of capital via debt securities in April, equivalent to over two-thirds of the total debt raised by the region's lenders, according to Market Intelligence data. Bank of China's $4.84 billion Tier 2 bond issuance was the largest debt offering completed by a bank during the month.

Given cheaper local funding costs, mainland Chinese banks are expected to raise capital in local currency, analysts said.

"While the majority of TLAC issuance is expected to take place in the local [Chinese yuan] market, due to much cheaper funding costs, we think a small portion may also be issued in the offshore US dollar market as banks refinance their existing dollar debts while maintaining an international investor base," said Andy Suen, co-head of Asia fixed income at PineBridge Investments.

In early May, Industrial and Commercial Bank of China Ltd. and Bank of China Ltd. announced plans to issue 30 billion yuan each in TLAC instruments. Other mainland Chinese global systemically important banks will follow suit in the coming months, Suen added.

Equity offerings

New Zealand-based Heartland Group Holdings Ltd. raised $62.4 million via follow-on common stock offerings in April, compared with $1.42 billion in the prior month and $1.2 billion in the same month a year ago, Market Intelligence data shows.

"There is no urgent need for raising equity capital, which banks tend to launch upon a benign market window," said Alex Wong, managing director and head of M&A for FTI Capital Advisors.

Wong pointed out that uncertainties in the market remain in view of recent heightened geographical conflicts, further delay in rate cuts and continued US-China tension that could impact global investors' participation in equity issuance, among other factors.

Equity issuance volumes may get back to normal levels once macro factors stabilize and when there is a notable recovery in sector valuation, Wong said.