Major Japanese banks are likely to follow one of their peers in issuing total loss-absorbing capacity bonds to cover maturing debt as investor demand returns after the furor over the write-down of Credit Suisse Group AG's debt.
Sumitomo Mitsui Financial Group Inc.'s (SMFG) $4.3 billion total loss-absorbing capacity (TLAC) note issuance drove total debt capital raised by Asia-Pacific banks in July to $11.50 billion, according to data compiled by S&P Global Market Intelligence. The July aggregate was lower than the $15.03 billion raised in June 2023 and $21 billion in July 2022. In addition to SMFG, Japan Bank for International Cooperation, China Bohai Bank Co. Ltd. and Asian Development Bank completed billion-dollar issuances in July.
The aggregate debt figures for the region's banks include bonds, senior debt and preferred securities.
Following SMFG's TLAC issuance in July, rivals Mitsubishi UFJ Financial Group Inc. (MUFG) and Mizuho Financial Group Inc. "will likely issue similar bonds as their already issued bonds will be matured and … they increase their risk assets," said Toyoki Sameshima, a senior analyst at SBI Securities Co. "Investor demand has returned after the Credit Suisse issue."
SMFG's TLAC issuance comprised senior notes worth $400 million due 2026, $850 million due 2026, $750 million due 2028, $650 million due 2030 and $650 million due 2033, as well as $1 billion worth of 6.184% subordinated notes due 2043, according to a July 17 note from law firm Davis Polk, which advised the Japanese megabank on the offerings.
Swiss regulators in March wrote down CHF15.8 billion of Credit Suisse's Additional Tier 1 (AT1) bonds to zero as part of the troubled lender's acquisition by UBS Group AG, damping investor demand for the relatively risky form of junior debt. Demand for such debt in Asia, however, returned after a hiatus, as both SMFG and MUFG completed AT1 debt issues in April and May, respectively.
Offshore vs. onshore
Asia-Pacific banks' activities in the offshore debt market are expected to remain subdued, analysts said, even as most of the debt issuances in July were denominated in foreign currencies, including the US dollar, British pound sterling and euro.
In total, $8.99 billion of banks' debt securities were denominated in foreign currencies, led by the US dollar.
"We expect Asian bank issuance in the offshore market to remain subdued, following a slow summer driven by seasonality and volatility in the rates market," said Andy Suen, co-head of Asia ex-Japan fixed income at PineBridge Investments.
Still, activities could pick up once Chinese banks start raising debt to meet TLAC requirements before a 2025 deadline, Suen said.
The big four Chinese lenders, classified as global systemically important banks by the Basel Committee on Banking Supervision, are required to hold TLAC equal to 16% of risk-weighted assets by Jan. 1, 2025. They have an estimated $550 billion capital gap to fill before the Jan. 1, 2025, deadline to meet those requirements, according to S&P Global Ratings.
Just a few equity offerings
In July, the region's banks completed just five equity offerings and raised a combined $790 million in capital, down sharply from $4.53 billion in the previous month and from $1.99 billion in July 2022, according to Market Intelligence data.
Notable equity offerings included The Federal Bank Ltd.'s $371.3 million and SinoPac Financial Holdings Co. Ltd.'s $238.3 million secondary share sales and Utkarsh Small Finance Bank Ltd.'s $60.9 million IPO.
