Asia G3 New Issue Review 2018
- Total issuance in FY 2018 was USD258.8b from 497 deals. A total of 123 banks acted as lead managers and bookrunners, bringing 593 new bonds to the market. In comparison, total issuance in FY 2017 was USD338.3b, which was a record year for Asia.
- With US Treasury yields rising in FY 2018, borrowing cost for Asian issuers have risen. Average yields and spreads of bonds at issuance rose to 7.89% from 6.19% and 147.6bps from 144.4bps, in FY 2018 compared to FY 2017 (Yield average only considers HY issuers).
- China(-23.8%), Hong Kong(-73.0%) and India(-64.0%) saw the biggest drop in issuance volume in 2018.
- The most obvious trend was the significant decrease in average maturity profile of bonds issued in 2018 vs 2017. Issuance of Perpetuals down 70.2% while Floating-Rate Notes are up 14.0% year-on-year.
- The not so obvious fact was that China real estate bond issuance was marginally higher in 2018 vs 2017. However, the maturity profile of issuance was skewed towards the front end, on account of the headwinds in the sector – short maturity bonds rose 171.3%. Average issue size for China real estate companies dropped 40% to average $292.3m per deal in 2018.
TOTAL ISSUANCE LOWER IN FY 2018
The year 2018 started off well with issuance keeping pace with 2017. However, there was an increasing divergence from May onwards. June 2018 recorded the lowest monthly issuance since the beginning of 2017.
There were a series of exogenous factors in play, including rising USD interest rates (middle of the year); the threat of a global trade war, which could have a negative impact on Asian growth and recession fear towards the end of the year. The Benchmark UST 10 year was only up 6% in yields terms by the end of June 2018 but the dispersion in new bond issuance was huge.
Total issuance in FY 2018 was USD258.8b, down from USD338.3b in FY 2017. There were 497 new deals and 593 bonds issued in FY 2018.
China, Hong Kong and India have seen the biggest drop in issuance volume, with China being the largest at -USD52.8b. On the other hand, Sri Lanka, Indonesia, Thailand, Philippines and Macao had an increase in their issuance volume. Macao has seen the highest surge in issuance volume of about 2100% compared to FY 2017 due to a one-off USD5.5b issuance from Sands China.
As expected, rising US Treasury yields have increased new issue yields (at time of issue) across all bonds.
Average yields and spreads of bonds at issuance rose to 7.89% from 6.19% and 147.6bps from 144.4bps, in FY 2018 compared to FY 2017.
In terms of issuance by sector, there has been a reduction in the top sectors – financials, quasi-sovereigns and real estate. Issuance volume of China Financials alone was USD34b lower in 2018 vs 2017. Only 2 sectors (Consumer Discretionary and Materials) saw more issuance in FY 2018 than FY 2017. The rise in the Consumer Discretionary sector in FY 2018 was due to a USD5.5b issuance from Sands China, whereas that of the Materials sector was due to the bumper issuance from Syngenta in April, accounting for USD4.75b.
There has also been a change in maturity profile of issuance in 2018. There has been a 14.4% rise in short maturity bonds (bonds with maturity less than 3 years), with majority of these bonds being issued by Chinese companies. Moreover, the issuance of perpetuals has fallen significantly.
Issuance volume of Asia Perpetuals dropped 70.2% in 2018 to USD 12.9b. While issuance volume of FRNs rose 14% in 2018 to USD 44.25b.
TOUGHER MARKETS TAKES ITS TOLL ON NEW ISSUANCE
Tougher market conditions in 2018 has rolled over into new issues, making book building tough for some issuers, as can be seen by the larger number of deals that have been postponed. There were 14 postponed deals in 2018, which is more than 50% increase from 2017 – 9 postponed deals in 2017. In addition, we also note that a couple of investment grade issuers have entered this spectrum in 2018.
CHINESE REAL ESTATE MARCHES ON
Going against trends, China real estate issuance is actually higher in 2018 vs 2017 – $45.6b in 2018 vs $44.2bn in 2017. Average issuance size is smaller in 2018 vs 2017 – $292.3m vs $486.5m. Maturity profile of Chinese real estate new issue has also skewed towards the front end of the curve – short maturity bonds (bonds with maturity less than 3 years) issuance for Chinese real estate rose 171.3%.
Average spread for IG deals widened to 211.3bps in 2018 from 200.6bps in 2017. Average yield for HY deals also rose to 8.86% in 2018 from 6.60% in 2017.
FAVORED DEALS OF FY 2018
TOP CHARTS OF FY 2018
LEAD MANAGERS PERFORMANCE (FY 2018)
HSBC continues to lead issuance in Asia, followed by Citibank, Bank of China and Standard Chartered Bank. However, some Chinese banks have emerged as active players. Haitong International and Guotai Junan International have been very active in smaller high yield deals and this has seen them come up the ranking tables in FY 2018.