SINGAPORE/HONG KONG- New issuance of dollar bonds in Asia in the first half of 2022 fell to its lowest in three-and-a-half years, as rising interest rates and turmoil in China’s property sector spooked investors and companies turned to bank loans to raise funds instead.
Asian companies raised a total of $124 billion by issuing dollar bonds in the first half of the year, the lowest half-yearly figure since the second half of 2018, and down from $222 billion a year earlier, according to Dealogic data.
“Volumes are definitely slower, … I would say we’re probably tracking for 20 percent lower gross issuance than we had last year,” said Leonard Kwan, portfolio manager of T. Rowe Price’s dynamic emerging markets bond strategy.
Kwan attributed the lower volumes to the war in Ukraine, problems in China’s property sector as well as macroeconomic uncertainty around the US Federal Reserve’s interest rate rising program.
The yield on benchmark 10-year US Treasury notes hit 3.498 percent in mid-June — the highest since April 2011 – pushing up rates companies have to pay investors.
While US yields have since retreated, Kwan does not see this as a catalyst for more issuance in the second half of the year as the drop was triggered by increasing fears of a looming recession.
“Investment grade names have had no issues in financing – they just have to accept the reality that there’s a higher cost, … but a lot of high-yield issuers are going to struggle to refinance their maturing debt,” Kwan said.
As turmoil in China’s property sector, initially at developer China Evergrande Group, has dragged on, many developers have offered bond exchanges to ease their liquidity pressures while a few, including Evergrande and state-backed Greenland Holdings Corp Ltd have defaulted on some payments. – Reuters
