HONG KONG Chinese banks have for the first time claimed the top spots for Asian bond market underwriting, on the back of a booming local corporate bond market and increased funding needs of companies in the world’s second-largest economy.
China has hosted the world’s biggest corporate debt market since 2014, and local banks are making hay while regulatory restrictions limit the ability of foreign rivals to compete.
Bank of China (601988.SS) (3988.HK), China Construction Bank (601939.SS) (0939.HK), Industrial and Commercial Bank of China (ICBC) (601398.SS) (1398.HK), CITIC Securities (600030.SS) (0267.HK) and Agricultural Bank of China (601288.SS) (1288.HK) now sit at the top of the Debt Capital Market (DCM) league table for Asia Pacific excluding Japan for the year to date, Reuters data show.
HSBC (HSBA.L)(0005.HK), last year’s leader of the table, which covers all local currency bonds, dropped to seventh, while Citigroup (C.N) slipped to ninth position from second.
“Multi-national companies have limited finance demand, given the sluggish growth, while Chinese ones are enthusiastically seeking overseas expansion and need capital from offshore markets,” said Leon Qi, China banking analyst with Daiwa Capital Markets.
Among the deals joint managed by Chinese banks was Exim Bank of China’s three-tranche bond raising $3 billion, the biggest corporate deal of the year.
Chinese banks have also been making inroads in other investment banking business in Asia, including equity capital markets (ECM), which account for about half of investment banking fees in the Asia Pacific region.
Chinese banks now account for eight of the top 10 slots in the ECM league table in Asia, with CITIC, which in 2013 bought Asia-focused CLSA, leading the field.
Chinese banks worked on the two largest Asia Pacific IPOs this year, the $1.94 billion listing of China Zheshang Bank Co Ltd (2016.HK) and the $990 million offering of Bank of Tianjin Co Ltd (1578.HK).
They have also been aggressively taking market share from foreign banks in the Asian leveraged buyout loans market.
Their dominance in Asia extends to the syndicated loan market, where the top three positions as mandated arrangers are already held by ICBC, Bank of China and China Construction Bank, latest Thomson Reuters data shows for the year to date.
AGGRESSIVE OVERSEAS EXPANSION
Mergers and acquisitions (M&A) is the only segment where Chinese banks are yet to make a serious dent, with foreign investment banks still taking six of the top 10 slots, led by Goldman Sachs (GS.N).
Though they have not made inroads in investment banking business outside Asia, they are nevertheless benefiting from funding corporate China’s aggressive overseas expansion as domestic growth slows.
Chinese companies have launched about $100 billion worth of outbound M&A so far this year, already within touching distance of last year’s record $104 billion tally.
Chinese banks’ near dominance of Asian DCM has been driven by domestic companies’ increasing switch to bonds in the yuan currency, also known as the renminbi (RMB), which come with lower coupon rates than dollar bonds.
“Chinese financial institutions are taking advantage of this shifting market landscape to cater to the financing needs of their customers and grow their own presence in the capital markets offshore,” said Daiwa’s Qi.
According to Standard & Poor’s, China’s corporate debt market, at an estimated $16.1 trillion outstanding, dominated the Asia-Pacific region’s $25.5 trillion aggregate and is a significant portion of the global total of $50.5 trillion.
S&P expects Chinese corporate debt to hit $28.5 trillion by 2019 or 40 percent of the global sum.
“The onshore RMB market is huge versus the other local currency markets in the Asian region, and recently we are seeing a lot of the Chinese issuers turning homewards to issue debt,” said a DCM banker at one of the top five Chinese banks.
Last month, Agile Property raised 1.2 billion yuan ($184 million) in 4-year bonds at a coupon of 5.8 percent, substantially lower than the coupon range of 8.25-9 percent attached to its dollar-denominated bonds over the previous five years.
In the first quarter of this year Asian issuance of bonds in the ‘G3’ currencies – U.S. dollar, euro and yen – has fallen 16 percent as the pipeline slowed following three record years.
“This is the reason why there is a skew, as Chinese local bond markets are expanding amid a slowing G3 bond market,” said the banker.
(Reporting by Umesh Desai and Denny Thomas; Editing by Will Waterman)
This story has not been edited by Firstpost staff and is generated by auto-feed.
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