Banks Expect Asia Bond Issuance to Surge Past $200 Billion

(Bloomberg) -- Asia’s dollar bond issuance is on a roll: bankers and analysts are lifting their 2017 forecasts as Chinese, Indonesian and Indian companies turn to the debt capital markets.

Bank of America Merrill Lynch this week raised its estimates for Asia dollar bond sales to $215 billion this year, from $178 billion previously, driven by high-yield and bank issuance. Bank of China Ltd. is turning more bullish, and expects full-year offerings to be about 10 percent more than anticipated due to deals from Chinese names.

Companies and financial institutions are selling bonds even as some global investors say they’re being squeezed out of the market by local buyers. Issuance, which is already at a record high so far this year, is increasingly being taken up by asset-management companies, funds and insurers, especially those from China hungry for dollar assets as the yuan weakens.

Led by Chinese companies that face tightening conditions to issue onshore, Asian borrowers outside Japan have sold $112.3 billion of dollar-denominated bonds so far this year, according to Bloomberg-compiled data. High-yield offerings have reached an all-time high of $20.4 billion, underpinned by refinancing needs among Chinese property developers, and higher volume from India and Indonesian corporations.

Going Offshore

“A lot of Chinese companies are switching to dollar issuance, which helps to increase the flow in the offshore market,” said Sebastian Ha, head of debt syndicate at Bank of China in Hong Kong. “I’d expect both investment-grade and high-yield Chinese credits to look into offshore funding for the rest of year.”

He anticipates that Asia ex-Japan dollar sales may rise to as much as $225 billion in 2017. Bank of China was the fourth-largest manager of dollar bond sales in the region last year.

The increased volume is also because issuers are front-loading their funding given Federal Reserve rate-hike expectations, according to Avinash Thakur, managing director of debt capital markets at Barclays Plc in Hong Kong.

Banks in December already said they expected 2017 sales to reach a new record, surpassing the $190 billion in 2014. New York-based Bank of America almost doubled its prediction for high-yield issuance because it sees more borrowers tapping the market for first time in the rest of the year.

Merrill’s new forecasts:

To contact the reporters on this story: Lianting Tu in Hong Kong at ltu4@bloomberg.net, Carrie Hong in Hong Kong at chong61@bloomberg.net.

To contact the editors responsible for this story: Neha D'silva at ndsilva1@bloomberg.net, Beth Thomas