New issuance from banks in Asia-Pacific fell sharply in January as Chinese lenders stayed on the sidelines amid rising liquidity and funding problems in the real estate sector.
Banks in the region borrowed a total of $3.57 billion in January, compared with $14.36 billion in December 2021 and $23.15 billion in January last year, according to S&P Global Market Intelligence compiled data. Japanese megabank Sumitomo Mitsui Financial Group Inc.’s $2 billion debt offering and Malaysia’s CIMB Bank Bhd.South Korea Woori bench and Japan Bank for International Cooperationor JBIC, were among the month’s biggest.
“It seems likely that Chinese bank activity will pick up,” said Angelina Ng, executive director of investment services at business and technology management consultancy Capco. More bonds are being sold in local currency and by companies at the “quality end of the market,” Ng said. For the higher-quality companies, “local financing should be readily available and most likely provide an easier route to funding” than US dollar-denominated debt, Ng added.
The pace of Chinese banks’ return to bond markets will be key to overall bond issuance in Asia-Pacific over the coming months, especially given the lukewarm interest of investors in many other Asian economies, which are raising interest rates while they are still falling of the crisis are suffering from the effects of the COVID-19 pandemic.
China is one of the few major economies where interest rates are trending lower on the back of mild inflationary pressures and government easing, making Chinese bonds relatively attractive to global investors. The People’s Bank of China is likely to cut domestic borrowing costs further to support the economy, likely keeping Chinese issuers on shore, analysts said.
Environmental, Social and Governance Bonds
Several bonds issued in January were used for sustainable financing.
For the first time for a Malaysian bank, CIMB offered $500 million in U.S. Sustainable Development Bonds to fund affordable housing, forestry and conservation projects. Sumitomo Mitsui intends to use funds from its seven-year bonds for existing and future environmental projects. The sale was part of the megabank’s $2.00 billion bond offering.
JBIC also sold $500 million in government-guaranteed green dollar bonds for similar projects, and Woori Bank offered $500 million in five-year 2.00% sustainability bonds to support eligible projects in the within the company’s Green, Social and Sustainability Bond Framework.