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Asia dollar bond boom intensifies with sky high investor demand

[HONG KONG] The boom in Asia's dollar bond market is ratcheting up a notch, with companies seeing more than five times as much demand as debt being sold during the first month of this year.

Chances of a steeper path higher for global interest rates that's lifted government bond yields this year is doing little to damp the appeal for debt from Asian companies outside Japan. The ferocious appetite in 2017, in part due to the hunger from investors chasing higher yields, is extending into January with Chinese property companies finding a flurry of buyers wanting to get their hands on newly issued debt.

"The market had a more cautious beginning last year on the view of a stronger dollar, higher Treasury yields and concern for emerging markets about trade outcomes following Trump's election," said Ashley Perrott, Singapore-based head of pan-Asian fixed income at UBS Asset Management. "Obviously, there aren't the same issues to start this year."

UBS Asset Management expects to see demand for dollar bonds in the region remain strong through to Chinese New Year, celebrations for which start next month. This is being driven be an improving global economic environment and the strong performance of riskier assets during the first few weeks of this year, he said.

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After selling a record US$322 billion of dollar notes in 2017, Asian firms are off to the strongest ever start to a year. Borrowers are expected to issue US$300 billion to US$350 billion in 2018, according to a Bloomberg survey of 35 bankers and analysts in December.

"Some investors were relatively quiet or closed their book in December. Given the market has been performing well since the beginning of the new year, they are playing catch-up now or don't want to miss the boat," said Gordon Ip, chief investment officer, fixed income, at Value Partners Group Ltd. "Overall there is new money in the market that needs to be put to work."

Dollar bonds sold by Asian companies outside of Japan in January received orders of 5.2 times the issued size on average, compared with a 3.1 times coverage ratio for deals sold in January 2017, according to data compiled by Bloomberg. Sunny Optical Technology Group Co attracted over 15 times of orders from 392 investors for its US$600 million 5-year bond, while Longfor Properties Co's US$300 million 5.25-year tranche and US$500 million 10-year tranche were eight times and 7.2 times covered, respectively.

"We've seen robust demand from investors for new issues since the beginning of 2018, as new inflows including cash generated from redemptions keep the appetite high," said Chao Li, head of Asia bond syndicate at Standard Chartered Plc in Hong Kong. Buyers from Europe and the Middle East favouring dollar debt in Asia aren't being put off by a strong pipeline of deals expected for the remainder of this year, he said.

Investors gobbled up Tencent Holdings Ltd's US$5 billion bond sale last week, the company's biggest US dollar offering, setting final pricing for the five-, 10- and 20-year fixed-rate tranches 30 basis points inside the initial price guidance.

Some investors may be holding back for better deals coming later in the year, according to Lorna Greene, director of debt syndicate & origination Asia at National Australia Bank. New bonds sold this year on average have gained 0.18 cents on the dollar from their issue prices, compared with an average gain of 0.36 cents in January 2017 for those sold in that month.

"Although investors will see a further increase in investable funds in 2018, the stable market backdrop and strong pipeline of APAC US$ issuance means there is less urgency for them to deploy their cash than in January 2017," she said.

BLOOMBERG

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