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December 11, 2012 10:37 am
Asian companies have borrowed more via the US dollar bond market than through syndicated bank loans this year for the first time, in what looks set to be a permanent shift in the way companies in the region raise money.
Year to date, corporate borrowers in Asia excluding Japan have raised $78bn in the G3 currency bond market – debt denominated in dollars, yen or euros – compared with $68bn via loans, according to Dealogic. That marks a sharp reversal from 2011, when Asian companies borrowed $104bn in syndicated loans and just $42bn in bonds.
The change in funding sources marks a “paradigm shift” for Asian companies, said Viktor Hjort, head of Asian fixed income research at Morgan Stanley, and one that many analysts believe will be lasting.
Before the 2008 global financial crisis Asia’s syndicated loan market, where banks club together to provide financing to large companies, often raised three or four times more than corporate bonds over the course of a year. Excess savings in the Asian banking system meant lenders could offer cheaper credit than bond markets could.
However, weakening exports and rising consumer spending in many Asian economies have led to a slowdown in savings, making it tougher for banks to lend, just as European banks reduce their lending activities in the region, pressured by the eurozone debt crisis. Banks the world over are scaling back as they look to repair battered balance sheets to meet the capital requirements of Basel III regulations.
Syndicated lending within the eurozone, for example, has fallen to its lowest in a decade, after dropping 45 per cent this year.
Meanwhile, investor appetite for debt has soared amid a quest for yield, enabling many Asian companies to bypass the banking system for the first time.
Mr Hjort predicted the US dollar bond market would account for 20 per cent of all Asian corporate borrowing next year, up from just 2 per cent in 2011.
Asia’s corporate bond market has enjoyed a remarkable year. Issuance has almost doubled to a record high, yields have fallen to all-time lows and companies have completed deals with far longer durations.
Earlier this year Samsung successfully issued a $1bn five-year bond priced with a yield lower than that of the South Korean government at the time. In November, Chinese internet portal Baidu raised $1.5bn, largely from US high-grade credit investors, while Soho China, a property developer, became the first Chinese real estate company to raise $1bn in one go.
In September, total international bond issuance in Asia ex-Japan – including financial companies and governments – topped $100bn for the first time, up tenfold from annual levels a decade ago.
However, some analysts have voiced concern that the Asian corporate bond market risks getting ahead of itself.
“When you start to create a lot of debt, you can continue to perform well for a couple of years,” said Guy Stear, head of Asia research at Société Générale. “But we’re building up a problem for two, three, four years down the line.”
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