In the first three days of the month there was plenty of primary activity in Asia ex-Japan, with four issuers raising a combined $4.28bn in dollar bonds. This is already near last year’s record December, when the region’s dollar fundraising reached $4.8bn, according to Dealogic.
While the headline volumes are impressive, even more encouraging for one Hong Kong-based syndicate banker were the sizes of the order books supporting this week’s trades.
Indonesia’s $3.5bn dual-tranche bond took $8.1bn in orders, while a $500m debut dollar offering by Tianjin Free Trade Zone was also well supported with bids in excess of $3.7bn.
“The amount of cash many accounts have sitting on their hands right now is really quite scary,” the syndicate banker said. “Some of the bids we’re getting from Chinese bank treasuries are so big that we can do deals simply with them alone.”
The abundance of liquidity in the market stands in stark contrast to the common perception that it tends to dry up in December. The reason for the outperformance, however, is mainly due to a dismal third quarter.
Asia DCM experienced a series of headwinds in the third quarter with the combination of the Greek debt crisis and the crash in China’s domestic equity market wreaking havoc on the region’s fundraising plans.
As a result, year-to-date dollar issuance in Asia ex-Japan reached just $158bn — a 15% reduction versus the same period last year.
“Even though we did see issuance go up in October and November, we’re still well below 2014 levels,” said a Hong Kong based co-head of investment banking. “Investors can’t just sit on cash, so if they see a good credit and the pricing is all right, they’ll buy.”
Selective credits only
The banker said he expected a healthy pipeline at least until the Federal Open Market Committee (FMOC) meets on December 15-16, although he added that it was important for underwriters to stay disciplined and be selective in terms of the kinds of credits they bring out.
He said eHi Car Services’ $200m 7.5% 2018s and Golden Wheel Tiandi Holdings $100m 9.5% 2017s were two examples of high yield credits that should not have been launched, even if they were priced successfully. eHi obtained just $400m of orders, while deal statistics for Golden Wheel were not released.
“Banks always try to clear as much of their pipeline as possible by the end of the year, which is why we tend to see a lot of launch-and-hope sort of deals during this time,” he said.
A pair of failed deals from Lodha Developers and Reliance Communications in December 2014 were examples of this approach, he said, adding that both eHi and Golden Wheel paid up severely for their respective trades but even then demand was weak.
“If they had got pricing even slightly wrong, those deals would have been pulled and we’d all have got an early Christmas holiday,” he said.
One DCM origination banker in Hong Kong agreed, saying that even though there was plenty of liquidity in the market, investors seemed to be sticking to safer names.
Tsinghua Unigroup was in the market on Thursday with a dual-tranche dollar deal and had received more than $2bn of orders by early afternoon Asia time. Tsinghua enjoys strong state backing, similar to Tianjin FTZ.
“Indonesia, Tianjin FTZ and Tsinghua, these are either sovereign or government-linked entities and that clearly tells you what investors prefer right now,” the banker said.
Big one to come
A fund manager based in Hong Kong told GlobalCapital Asia he was keeping his account open as he was waiting for one more high-profile transaction before the year ends. China Construction Bank has been working behind the scenes for a couple of weeks, sounding out investors for a dollar-denominated additional tier one, the investor said.
The deal launch is expected in the week of December 7 and the bank is likely to issue the notes at a 4% handle, the investor said.
If that comes to fruition, CCB would take the title of printing the tightest priced AT1 from Asia ex-Japan. Bank of Communications and Woori Bank share that honour at the moment, with both having printed their notes at 5% earlier this year.
CCB is confident it will be able to beat that number because Chinese AT1s have been trading extremely tightly in the secondary market thanks to a lack of bank capital supply. Dollar AT1s from Bank of China, Bank of Communications and ICBC are yielding around 4.5%.
“It really tells you how much we all know when one year ago we’re talking about how expensive the Bank of China and ICBC AT1s were at 6%,” the investor said. “Yields have widened this year yet the AT1s are now at 4% plus.”