Asian issuers go long in bonds


Issuers in Asia are selling US dollar bonds with long maturities to nail down low funding costs, helped by lower US Treasury benchmarks and a flattening yield curve on the back of a darkening global economic outlook.

By Carol Chan

HONG KONG, Sept 13 (IFR) - Issuers in Asia are selling US dollar bonds with long maturities to nail down low funding costs, helped by lower US Treasury benchmarks and a flattening yield curve on the back of a darkening global economic outlook.

So far this month, nine Asian issuers have raised US$7.55bn from dollar bonds with tenor of 10 years or longer, and another three have issued perpetual bonds for a combined US$1.65bn, a sharp increase in activity after the summer holidays.

"Treasury yields have fallen a lot this year. It became more and more attractive for issuers to issue bonds with longer maturities to lock in the low funding cost," said a banker from a Chinese investment bank. The banker expects to see issuance of fixed-for-life perps later this year, after the securities fell out of favour with investors in late 2018.

The yield on the benchmark 10-year US Treasury is hovering near its all-time low, cutting costs for dollar issuers. It dropped below 1.5% in August and continues to hover in a low range below 1.8% in September, amid concerns about the rising risk of a global recession and the escalating US-China trade dispute.

So far this year, the yields of two-year, five-year, 10-year and 30-year Treasuries have dropped about 76bp, 86bp, 90bp and 80bp, respectively.


Issuers that sold long maturity bonds last week included two Japanese financial companies, Mizuho Financial Group and Sumitomo Mitsui Financial Group. Mizuho on Monday priced US$1.6bn SEC-registered bonds in three tranches, including a US$500m 2.869% 11-year non-call 10 fixed-to-floating tranche priced at par to yield Treasuries plus 122bp. SMFG on Tuesday priced a US$500m 10-year subordinated Tier 2 bond priced at par to yield 3.202%, equivalent to Treasuries plus 148bp.

Chinese property developer Longfor Group Holdings also joined the supply spree with a chunky US$850m 3.950% 10-year bond priced on Monday at 99.071 to yield 4.064%, or Treasuries plus 247.5bp. The Reg S issue was its largest single-tranche dollar bond since its debut dollar bond in 2011.

Hong Kong insurer FWD Group on Tuesday sold US$600m perpetual non-call five capital securities at par to yield 6.375%.

Far East Consortium International on Tuesday reopened its 7.375% senior perpetual non-call 5.1 capital securities priced earlier this month for a tap of US$50m, bringing the total outstanding to US$300m. The Hong Kong property developer and hotel operator sold the additional paper at 102.423, more than two points higher than the original notes, reflecting the strong demand for a structure that comes with additional duration risk for investors.

Angus Hui, head of Asian credit and emerging market credit at Schroders Investment Management, said there is demand for long duration bonds in Asia, especially from insurers.

"As the US may further lower its interest rate while global economic growth is slowing, investors need to go down to the long end of the curve for higher yields," he said.

"There was not much supply of Asian long maturity dollar bonds in the market previously. But given the flattening yield curve, supply may increase in the coming months," he said.

However, as Asian corporates are currently not very active in M&A, which would raise the need for long-dated funding, he does not expect supply of long duration bonds or perps to increase substantially.

A banker from a European bank said investors would be willing to buy more long maturity bonds from investment-grade names, but they remain sceptical of high-yield issuers. "People are fine with longer tenors from good quality issuers, but smaller companies might find it tricky," she said.

(This story will appear in the September 14 issue of IFR Asia magazine Reporting by Carol Chan; Editing by Daniel Stanton)

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