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Treasury & Capital Markets
Non-public debt markets provide Asia deal flow
Amid Asia G3 bond market dislocation, several Chinese issuers shift to offshore yuan
Chito Santiago 2 Oct 2023

With the scarcity of supply in the Asia G3 bond market, banks are looking at the secondary market to arrange deals for investors. There are a lot of asset swaps happening and private placement market activity has increased.

“With the slowdown in the public debt markets, we have turned to private placements to help match ongoing investment and funding needs on a more bilateral basis to mitigate execution risks, and these are done in offshore yuan and Singapore, Hong Kong and US dollars,” Clifford Lee, global head of fixed income at DBS, tells The Asset. “In many cases, these are also packaged with asset swaps to convert the assets or debt back to their base currency of choice.”

Total issuances in Asia G3 bond market, outside of Japan and Australasia, continues to spiral downward with the volume in the first six months of 2023 plummeting 26.5% to US$103.91 billion from US$141.36 billion in the same period a year ago, according to Refinitiv. This comes as the volume was almost halved to US$202.46 billion for the whole of 2022 from the record high of US$402.95 billion in 2021.

In addition to private placement deals, residential and commercial mortgage-backed securities securitization type structures are coming up as real estate investment trusts need to recalibrate their own rentals to pay the higher yields.

These structure-type deals, which also include convertible and exchangeable bonds, make sense in the current market environment when the equity market is soft and the rates are high. “In the past, Asian investors have been looking primarily to Asian issuers for new bond supply,” Lee points out. “With Asian issuances getting few and far between, we have stepped up our efforts to engage issuers outside of Asia.

“This helps our foreign issuer clients access the still ample Asia liquidity pool and, in turn, helps to provide Asian investors with a continued supply of bonds in both US dollar as well as local currencies during the primary market dislocation this year.”

Southeast Asia

This also comes as the G3 bond supply will continue to be constrained in the coming months. In Southeast Asia, issuance out of Indonesia is expected to be not active in view of the forthcoming presidential election in February 2024, while the Philippine debt capital market continues to be well-funded with onshore liquidity.

Issuance out of Malaysia has been muted, although Resorts World Las Vegas, which is owned and operated by the Genting Group, managed to access the US dollar bond market in July with a US$400 million offering for seven years to repay debts. Sovereign wealth fund Khazanah Nasional also tapped the market in May with a combined conventional bond and sukuk of US$750 million each.

In addition to private placement market, deals out of Asia are also being sourced from the private credit market, where a lot of liquidity is building up in the region. What makes this space more interesting now is the fact that the capital being invested into these deals have lock-up structures ranging from five years to seven years. Such investment is less liquid, and the company being invested in needs time to turn around. The lock-up also enables the company to take market swings without worrying they’ll be forced to exit.

DBS Group is an anchor investor in the Muzinich Asia-Pacific Private Debt Fund 1, in line with its strategy of investing in new revenue and growth opportunities arising from special situation opportunities. It invested US$200 million out of the initial fund size of US$500 million. The fund is currently invested in nine companies spread across Australia, offshore China and Southeast Asia. The average deal size is between US$30 million and US$40 million, and in some cases up to US$100 million.

“In terms of asset class, infrastructure is the investment of choice that everyone is chasing after; and if it is green infrastructure, that is in even higher demand,” says Lee. “But such assets are still in short supply, and the good ones are also sought after by banks, which can offer more competitive funding costs.”

The real challenge for these private credit funds is to look for the big-size type of transactions where they can deploy their capital. So far, big size capital deployment is seen in India. The Shapoorji Pallonji Group has recently raised US$1.7 billion through a private credit facility, pledging shares to raise the capital.

“Holdco or shareholder financing are typical of transactions turning to private credit funds for financing. And with the state of the equity markets in Asia, pre-IPO financing could be another requirement to be solved via private credit deals before the public market firms up again.”

Outside of Asia, most of the private credit transactions are sponsored-driven like private equity, while many of the transactions in this region have no sponsors. Lee explains: “They speak to the borrowers directly, do their own due diligence from scratch. The hit rate of deal sourcing versus actual deals done is in low single digit in terms of percentage.”

The internal rate of return (IRR) for private credit varies, depending on the kind of deals and markets. In competitive markets like Australia and other developed ones, the IRR could be a high single digit.


The continued volatility in the Asia G3 bond market is driving several Chinese issuers to shift to the offshore yuan bond market to meet their funding requirements. Many of these deals are anchored by Chinese banks and Chinese securities companies, and their distribution is very much Asia-centric. The stream of deals illustrates the offshore yuan bond market remains very relevant, and it is a good avenue for fund raising.

Even China’s ministry of finance tapped the offshore yuan bond market for its latest fund raising, pricing on September 19 a dual-tranche offering totalling 5 billion offshore yuan (US$684.90 million). The Reg S deal comprised of a two-year bond amounting to 4 billion offshore yuan and a five-year bond amounting to 1 billion offshore yuan. The Hong Kong Special Administrative Region and the Hong Kong Mortgage Corporation also included offshore yuan tranches when they printed their green bonds and social bonds, respectively, this year.

The big Chinese banks also tapped the offshore yuan bond market not just for their funding requirements, but to achieve their sustainable financing objectives as well. Agricultural Bank of China (Hong Kong) priced in January a 2.5 billion offshore yuan bond for two years, while Bank of China (Hong Kong) printed in March a 1 billion offshore yuan sustainability bond. BoC (Macau) priced a 2 billion offshore yuan Yulan bond in May, while BoC (Luxembourg) raised in September a Belt & Road Initiative partner-themed green notes amounting to 2 billion offshore yuan. ICBC (Singapore) priced in January a 2.5 billion offshore yuan carbon neutrality green bond, while China Construction Bank (London) raised in May a 2 billion offshore yuan green note.

One exciting spot for distribution for offshore yuan deals going forward, according to Lee, is the Middle East, following the increasing dialogue and cooperation between China and the region, which is willing to start looking at the offshore yuan as an alternative settlement currency. “The prospects are exciting, but still in the early stages of development,” he says.

The interest in offshore yuan bond market also comes at a time when the Asia G3 bond market is in a rather strange situation with the prevailing scarcity in deals amid an extremely ample liquidity. Noticeably, several of the Chinese state-owned enterprises remained at the sidelines. “It is beyond market volatility that is constraining the bond supply. It is also the general economic sentiment,” notes Lee. “If companies are not optimistic about the economy and are worried the geopolitical risks are going to potentially make the business sentiment even worse, the current market backdrop will continue for a while. We need broader political, economic and rates stability to see a resumption of bond issuance activities in Asia.”

In addition to non-public market deals, what is also helping banks in China to source their deal flow is the onshore bond market. For DBS, its joint venture securities company in China, DBS Securities (China), arranges Panda bonds, exchange traded bonds and financial bonds. “Regulatory-wise, the requirements for the issuance of Panda bonds have become clearer,” says Lee. “The regulations are a bit more transparent. It is less onerous to tap into the market.”


And in its home market of Singapore. DBS is seeing a proliferation of Singapore dollar deals from foreign issuers, which is described as a breath of fresh air because many local issuers are holding back. Lee adds: “This is a welcome relief amid the scarcity of supply.”

The issuance in Singapore dollar bond market, according to Refinitiv figures, fell year-to-date to September 26 to US$8.62 billion equivalent from US$14.69 billion equivalent in comparable period a year ago. Domestic issuances accounted for US$4.46 billion equivalent of the total, or less than half of the US$10.18 billion equivalent in 2022. Foreign banks have accessed the market this year to raise capital, including HSBC, which priced a S$675 million tier-2 bond in September and a S$600 million holdco senior bond in May. Barclays tapped the market for additional tier 1 perpetual notes amounting to S$400 million in March, while Credit Agricole printed tier 2 notes in August amounting to S$350 million.

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