The “Super Golden Week” has passed with only one bond that has an Asian element priced — a deal from Singapore-headquartered global energy company Puma Energy Holdings, which sold a $600m 5.125% seven non call three year bond. But the firm hardly counts as an Asian one. The company, now 49.6%-owned by Trafigura, was incorporated in Argentina, is listed in Luxembourg, and has the majority of its operations located elsewhere, including Africa and the Americas.
The first week of October was entirely bereft of issuance, but borrowers from outside China should not waste any more time. The door has been pushed wide open for non-Chinese deals, thanks to a foreseeable slowdown in primary bond issuance from the world’s second biggest economy in the last quarter of the year. Now is the time for the non-Chinese to up their game even further, after reaching a record volume so far in 2017.
With the 19th National Congress of the Communist Party of China starting on October 18, market participants expect bond offerings from the country will be achingly slow – at least by Chinese standards – in the coming couple of weeks.
Apart from Bank of Zhengzhou’s additional tier one bond, three deals will potentially hit the screen next week — from water treatment company Citic Envirotech, Haier Group Corp and China Singyes Solar Technologies Holdings.
But even after the leadership rejig, market participants see no sharp rebound in volume from the country. This is because the top regulator for offshore debt, the National Development and Reform Commission (NDRC), has tightened its grip on new issues. Chinese bonds with maturity of longer than one year must be registered successfully with the NDRC beforehand, but that green light has proved hard to get this year. There is also some talk that the NDRC is nearing its undisclosed ceiling for overall debt issuance.
With ample liquidity in the market and a slowdown from China for the rest of the year, the rest of Asia will now find demand is almost a given. They can benefit from offering investors an obvious diversification play, although they will have to tap the market without getting support from China’s abundant retail investor base.
That will be a nice test for quite how much the market has come to rely on Chinese supply and demand. Kia Motor and GMR Hyderabad International Airport are among those planning deals, while Korea Electric Power Corporation is said to have sent out a request for proposal and Union Bank of Philippines’ board of directors recently approved the establishment of a $1bn euro medium term note programme.
Now is the time for these issuers to come to the market. They will undoubtedly get a captive audience and, with yields still at razor-thin levels, there could be few better times for banks and corporations alike to fund in the dollar bond market.
Some bankers think this argument will be enough to bring in a wall of pre-funding from Asian issuers. While the bulk of refinancing requirements in south and southeast Asia for 2017 have already been met, those with 2018 maturities may be tempted to come to the market soon. First-time issuers are also expected to line up to the market.
The supply, then, should take care of itself. But quite how easy it is for bankers to close these deals without competition from Chinese credits — but also with an absence of Chinese buyers — will be a litmus test for the development of Asia’s bond market. With China’s help, the dollar bond market has gone from strength to strength. We will now see how it does when China takes a rest.