Strong demand for US$ bond deals

IT'S a busy day for the Asian US dollar (US$) bond market. Besides the DBS USD Additional Tier 1 Perpetual bond deal, two other Chinese issuers are also tapping the market, and orders for the three are said to have exceeded a combined US$16.55 billion.

All three are benchmark sized deals which means they will print at least US$1.5 billion worth of bonds.

DBS's USD Additional Tier 1 bond deal received orders over US$8 billion and the latest update is that it will be priced at 3.65 per cent, plus/minus 5 basis points. The initial guidance was around 4 per cent.

Issue size will be capped at US$750 million.

The two Chinese issuers are Chongqing Western Modern Logistics Industrial Zone and Road King Infrastructure; both are selling US$ five-year bonds.

Chongqing Western Modern Logistics Industrial Zone received orders of over US$3.8 billion and issue size will not exceed US$500 million. The final price guidance is T5 plus 220 basis points, down from the initial T5 plus 250 basis points. T5 is currently at 1.198 per cent.

Orders for Road King Infrastructure was over US$4.75 billion and issue size is capped at US$500 million. Final price guidance is 4.70-4.75 per cent, down from an initial 5 per cent.

Investors are broad based and spread across Asia, said Clifford Lee, DBS Bank head of fixed income.

DBS Bank is involved in all three deals.

"The investor types are quite broad-based - asset managers, hedge funds, insurance companies, sovereign wealth funds and private banks," he said.

The strong demand, said Mr Lee, is because "in a nutshell, the market continues to be long in cash and hence still under-invested, and the interest rate outlook remains subdued with any rate increase being a token move at best".

"All in all the Asian USD bond market sentiments are very conducive now," he said.

Year to date (YTD), the Asia ex-Japan G3 (US$, euro and yen) market is worth US$119 billion, not including Tuesday's deals. YTD 2015 it was US$130 billion. Full year 2015 saw US$174 billion worth of bond sales.

Mr Lee said 2016 got off to a slow start because Chinese issuers were held back by devaluation concerns. In previous years China accounted for about 60 per cent of the Asian US$ bond market.

Chinese issuers - because of devaluation fears - went onshore earlier this year but the authorities realised that for Chinese borrowers who need US$, they would then sell yuan to raised US$, increasing the risk of downside pressure on the Chinese currency, said Mr Lee.

"So we see them returning to the offshore market and approvals have been forthcoming," he said.