2019 started off strongly for Asia G3 primary markets. Despite the escalading threat of a global trade war, issuers navigated headwinds to find pockets of pent-up investor demand. The strong rally in US Treasuries sent the market into a further frenzy towards the tail end of the first half.

Asia G3 New Issue Trends
First Half 2019

Summary

  • Total issuance in H1 2019 was 23.3% higher than H1 2018, indicating a very healthy primary market. Total issuance in H1 2019 was USD 177.5b from 354 deals. A total of 181 banks acted as lead managers and bookrunners, bringing 409 new bonds (including taps) to the market.
  • The strong US Treasuries rally towards the end of H1 2019 gave issuers the perfect window to ramp up issuance in Asia. However, average yields at issuance for high yield bonds have widened to 8.24% from 7.99% largely driven by higher yields demanded on China RE, while average spreads of investment grade bonds at issuance have widened to 138.6bps from 133.5bps, in H1 2019 compared to H1 2018.
  • Perpetuals are in demand. Given the rates environment and strong market sentiment, issuance of perpetual notes increased by 119% to USD 9.43b in H1 2019 from USD 4.3b in H1 2018.
  • On regional break up, Indian issuers seem to have used the market conditions very favourably and Indian issuers were third in terms of issuance volume, up from sixth in H1 2018, with over 200% growth in issuance volume.
  • Another interesting trend was the increase in the number of sole-led deals, increased by 81.8%, with majority of deals being priced by real estate issuers. Credit Suisse and Goldman Sachs were the top 2 bookrunners for sole-led deals.
  • HSBC tops the lead managers’ table while Chinese banks and security houses continue to be the most active.

TOTAL ISSUANCE UP IN H1 2019

2019 started off strongly for Asia G3 primary markets. Despite the escalading threat of a global trade war, issuers navigated headwinds to find pockets of pent-up investor demand. The strong rally in US Treasuries sent the market into a further frenzy towards the tail end of the first half. Issuers capitalized on lower rates to execute their funding plans. The month of June was the busiest which saw monthly issuance more than double that in 2018 [chart 1].

Total issuance in H1 2019 was USD 177.5b, up from USD143.9b in H1 2018. There were 354 new deals and 409 bonds (including taps) issued in the first half this year.

Chart 1: Monthly and cumulative issuance in 2018 and 2019

Chart 2: Monthly average new issue and UST yields 

Chart 3: Change in issuance volume in H1 2019
against H1 2018 by region

Chart 4:  Average spreads and yields at issue 

China, India, and Hong Kong saw an increase in issuance volume while a significant drop in volume can be observed in Singapore and Indonesia [chart 3].

Interestingly, the dip in US Treasury yields did not stop new issue yields of high yield bonds from increasing (at time of issue). Average yields of high yield bonds at issuance rose to 8.24% from 7.99% in H1 2019 compared to H1 2018. Similarly, average spreads of investment grade bonds widened to 138.6bps from 133.5bps for the same period [charts 2,4]. The rise in average yields was due to a stark increase in issuance by high yield real estate issuers.

Chart 5: Issuance volume by sector

Chart 6: Types of bonds issued

Chart 7: Maturity profile of bonds issued

Chart 8: Tightening from Initial Price Guidance

In terms of issuance by sector, real estate issuance topped the charts, almost doubling that of H1 2018. Six sectors saw more bonds issued in H1 2019 than H1 2018 [chart 5].

The energy sector in H1 2019 saw strong growth as a diverse pool of Asian energy producers tapped the dollar bond market. In terms of sovereign issuance, sovereigns have been more active in the first half of 2019 issuing USD 12.8bn (Up 31.8% as compared to H1 2018). The Democratic Socialist Republic of Sri Lanka twice issued bonds – in March and June, amounting to USD 4.4b.

Issuance of floating rate notes (FRNs) has dipped significantly to USD 8.78bn, down 62.8% compared to H1 2018 [chart 6].

There has also been a slight change in the maturity profile of issuance in 2019. We have witnessed a greater concentration in short end of the curve, in particular bonds with maturity of one year to five years. Perpetual bonds issuance also doubled to USD 8.6bn while issuance of bonds with less than a year maturity has fallen significantly [chart 7].

Strong demand for risk has enabled stronger price tightening from initial price guidance as average price tightening increase across both investment grade and high yield deals [chart 8].

DEMAND FOR HIGH GRADE ISSUES

Concerns over economic growth triggered by prospects of a lengthy global trade war, rising protectionism and heightened geopolitical tensions triggered a flight to quality in H1 2019. Investor demand in the primary market was skewed towards high grade issues, with average book coverage peaking at 7.48x in March this year. Investor participation for investment grade deals consistently outperformed that of high yield deals throughout the first half of 2019.

Chart 9: Average Book Coverage Ratio

Chart 10: Average Number of Accounts Participating

Table 1: Top 10 Highest Book Coverage

The top book coverage ratios this year smashed the record of 15.2x from FY2018. Chinese issuers dominate the Top 10 oversubscribed deals with China Orient Asset Management’s 4.5% Mar 2029 bonds topping the charts with a massive 31.7x book coverage, more than double the most covered deal last year.

RISE OF SOLE-LED DEALS(NON-BANKS)

The number of sole-led deals(non-banks) rose to 20 deals in first half of the year, up from 11 deals in H1 2018. The total issuance volume priced more than doubled to USD 5.56bn in H1 2019, compared to USD 2.23bn in H1 2018. Real estate issuers constituted 85% of all sole led deals, with China Evergrande Group alone issuing USD 1.6bn.

Credit Suisse led in this field having priced 5 sole-led deals totalling USD 1.85bn. Goldman Sachs follows with 4 deals totalling USD 625m.

LEAD MANAGERS PERFORMANCE (H1 2019)

Rank of Lead Managers by Issuance Volume

Rank of Lead Managers by No. of Deals

Rank by Volume – Investment Grade

Rank by Volume – High Yield

Share on