Asia-Pacific banks' new debt issuance fell sharply in January, as lenders from China stayed on the sidelines amid growing liquidity and funding problems with the real estate sector.
Banks in the region raised a total of $3.57 billion in bonds in January, down from $14.36 billion in December 2021 and $23.15 billion in January last year, according to data compiled by S&P Global Market Intelligence. The $2 billion debt offering of Japanese megabank Sumitomo Mitsui Financial Group Inc. and the $500 million bond issuances of Malaysia's CIMB Bank Bhd., South Korea's Woori Bank and Japan Bank for International Cooperation, or JBIC, were among the biggest in the month.
"It seems likely that activity from Chinese banks will pick up," said Angelina Ng, executive director for securities services at business and technology management consultancy firm Capco. More bonds will be sold in local currency and by companies at the "quality end of the market," Ng said. For the higher grade companies, "local funding should be readily accessible and will most likely present an easier route to financing" than U.S. dollar denominated debt, Ng added.
The pace of the return of Chinese banks to the bond market will be crucial to the overall debt issuance in Asia-Pacific in the coming months, especially with lukewarm interest from investors for many other Asian economies that are raising interest rates while still reeling from the effects of the COVID-19 pandemic.
China is among a few major economies where interest rates are trending lower amid benign inflationary pressures and the government’s easing measures, making Chinese bonds relatively attractive to global investors. The People's Bank of China will likely lower domestic borrowing costs further to support the economy, which will likely keep Chinese issuers onshore, analysts said.
Environmental, social and governance bonds
Several bonds issued in January were for sustainable financing.
In a first for a Malaysian bank, CIMB offered $500 million of sustainable development goals bonds in the U.S. to help finance affordable housing, forestry and wildlife conservation projects. Sumitomo Mitsui aims to use funds from its seven-year notes for existing and future environment-related projects. The sale was part of the megabank's $2.00 billion bond issuance.
JBIC also sold $500 million of government-guaranteed green dollar bonds for similar projects and Woori Bank offered $500 million of 2.00% five-year sustainability notes in support of eligible projects under the company's green, social and sustainability bond framework.
