Australian banks are expected to remain active in debt capital markets, even as high interest rates dampen the country's economic growth prospects.
Australian and New Zealand banks, including Commonwealth Bank of Australia, Bank of New Zealand, Westpac Banking Corp. and ASB Bank Ltd., raised $3.59 billion via debt securities in June, compared to $2.03 billion a year ago, according to S&P Global Market Intelligence data. The total raised in May was $4.23 billion.
"The Australian economy and banking sector do remain in pretty good shape," said Gavin Gunning, senior director and global and Asia-Pacific sector lead at S&P Global Ratings, "I think just as a matter of principle, this pickup [in Australian banks' debt issuance activity], it's reasonable we would expect it would continue."
The forecast comes as S&P Global Ratings cut Australia's GDP growth projection for 2023 by 20 basis points to 1.4%, a move attributed to slowdown risks posed by higher interest rates. The fallout from higher interest rates may become more visible in the broader economy in the second half of the year, the agency said in a June 25 report.
Banks across Asia-Pacific raised a combined $12.28 billion via debt securities in June, down from $12.70 billion in the previous month and $22.97 billion a year ago, according to data compiled by Market Intelligence.
Notable offerings included Agricultural Bank of China Ltd.'s $2.81 billion nonconvertible debt sale, a $2.5 billion issuance from Mizuho Financial Group Inc. and a $2 billion issuance from the Asian Development Bank, Market Intelligence data shows.
The aggregate debt figures for the region's banks include bonds, senior debt and preferred securities.
Wave of capital raises
The outlook for Asia-Pacific banks' capital-raising activity is bright following the recent slump.
Jason Ho, Asia leader of investment bank FTI Capital Advisors LLC, said he expects a possible "wave" of bank capital raises as the interest rate hike cycle nears its end and as lenders prepare for upcoming stringent capital regulations in 2025.
Banks' ongoing effort "to raise capital in preparation for forthcoming, more stringent bank capital regulations, combined with a clearer understanding of interest rate trends, has the potential to trigger a wave of capital raises in the near future," Ho said.
China's four largest banks are expected to begin issuing total loss-absorbing capacity (TLAC) securities as they have a Jan. 1, 2025, deadline to hold TLAC capital equal to 16% of their risk-weighted assets. Chinese global systemically important banks must fill an estimated $550 billion capital gap to meet the requirement, Ratings said in a Jan. 18 report.
Equity issuance picks up
Asia-Pacific banks raised a combined $4.03 billion via equity instruments in June, up from $1.74 billion in the previous month and up from $860 million a year ago, Market Intelligence data shows. June's total was driven by a $2 billion convertible issuance from the Asian Development Bank and a $1.36 billion follow-on equity offering by China Zheshang Bank Co. Ltd.
China Zheshang Bank's rights offering, announced in October 2021 and priced on June 21, involved the issuance of 5,014,409,033 class A shares to shareholders on a best-efforts basis. Net proceeds from the offering will be used to replenish core Tier 1 capital and increase its capital adequacy ratio, among other things.
The pickup in Asia-Pacific banks' equity issuance in the second quarter was in line with global trends. At $77.39 billion, global equity deal value was up 28.8% compared with the previous three months, the first quarter-on-quarter increase in more than a year, according to Market Intelligence's M&A Equity Offerings Market Report.
