Debt investors are bracing themselves for a tepid fortnight, as Chinese issuers take a step back from the market ahead of Chinese New Year in late January. “The market is going to shut down for an entire two weeks,” said a syndicate banker in Singapore.
But there is little doubt that investors and issuers are going into the holiday on a high. Asia’s bond market has now experienced its busiest start to a year, despite several weeks of quiet issuance in early January.
Asian issuers outside of Japan had sold $21.22 billion by Thursday morning, according to Dealogic data. That is 83% higher than they sold by the same day last year, and still well above the $19.47 billion they issued in 2015.
Perhaps most striking about the surge of issuance this year, and particularly this week, is the range of credits it has included. China has predictably dominated supply, with asset managers, property companies and little-known high yield credits all coming to the market. But sovereigns, insurance companies, policy banks and corporations have also joined the rush.
These issuers all appear to have been greeted well by investors. Although not every deal this year has generated a huge order book, pricing has left little on the table for investors. Almost all deals this week priced flat to or inside their secondary curves, said another debt banker. It is not hard to see why.
“We are still in a world swimming with central bank-led monetary stimulus, so investors like us have to take more credit risk in order to deliver alpha,” said a fund manager in Singapore on Wednesday.
Some bankers think things might be slower in February, even after investors return from their holidays. The inauguration of Donald Trump on Friday could bring in a spell of volatility. The bulk of Chinese issuers, despite appearances this week, still need to get approval from the National Development and Reform Commission, a regulator, before they can come to the market.
But that remains an open question. Bond issuers are still hungry to fund, and investors are enjoying huge liquidity. Both points were demonstrated clearly in the middle of this week.
Rush hour
China Huarong Asset Management sold by far the biggest deal on Wednesday, raising $2.6 billion from a mix of short-term and perpetual debt. The company split its deal between a $1.1 billion three-year deal, which paid investors a spread of 200bp over Treasuries, and a $1.5 billion senior perpetual note, which closed with a yield of 4.70%.
Chinese property companies Beijing Capital Land and Yuzhou Properties also turned to bond investors. Beijing Capital, a triple-B rated company that sold its deal through Central Plaza Development, raised $400 million from a three-year bond that gave investors a spread of 252.5bp over Treasuries, while Yuzhou Properties issued a $350 million five-year deal that offered a 6.1% yield.
Two Chinese high yield companies also sold bonds on Wednesday night, making their debuts in the international debt market. United Photovoltaics issued a $250 million three-year bond that offered a yield of 8.875%, and Reward Science & Technology Industry raised $200 million from a three-year bond that came with a 7.5% yield.
Export-Import Bank of Korea rounded out the heavy supply with a $1.5 billion dual-tranche deal, split between three- and five-year bonds.The policy bank’s $500 million January 2020 bond was priced at just 70bp over Treasuries. Kexim split the five-year tranche between a $500 million floater paying 87.5bp over three-month Libor and a $500m fixed-rate note that priced at a level equivalent to 92.5bp over Treasuries.
The Republic of the Philippines also returned to debt investors, pulling off a tender offer and a new $2 billion deal on Thursday morning.
