Asian Governments Boost Dollar Borrowing to Fight Coronavirus
Asian governments have turbocharged their issuance of dollar bonds as they seek to fortify their balance sheets and fund relief efforts during the coronavirus pandemic.
Sovereigns, supranationals and government agencies in the region, excluding Japan, raised $18.7bn in dollar bonds in April, their fastest rate in 10 years, according to Dealogic data. Asian governments have issued more than $30bn in dollar bonds in 2020 so far, double the total in the same period last year.
The wave of debt issuance has come as the spread of Covid-19 has rocked economies across the region, straining government finances and healthcare systems.
The flurry of issuance came after the US Federal Reserve’s decision in March to cut rates to near zero in response to the health crisis, lowering borrowing costs. With the yield on US Treasuries close to all-time lows, investors have also had to look to more exotic corners of the market to generate returns.
Among the most eye-catching has been the Indonesian government’s move in April to raise $4.3bn through bonds, including Asia’s first-ever 50-year issuance. Jakarta plans to use the proceeds for its virus relief efforts.
Jan Metzger, Asia-Pacific head of banking, capital markets and advisory at Citi, who worked on the deal, said governments had sought to fortify their balance sheets against the impact of Covid-19. “All governments will be considering actions that are focused at alleviating the virus.”
Bankers said borrowers whose debts mature soon had been approaching the market earlier than previously planned to roll over their bonds, fearing the economic toll from the virus could limit their access to capital markets in the future. Dealogic data show that about $107bn worth of regional US dollar-denominated debt matures this year.
Meanwhile, Asian companies have raised $67bn in dollar bonds during the same January to April period — or close to last year’s total — despite the pressure the crisis has put on capital markets.
Mr Metzger said companies were worried that further waves of the virus or “another patch of hugely bad news” related to the pandemic could hit their ability to raise funds, encouraging them to come to the market sooner than they would have otherwise.
Among the most significant deals was a series of bonds from Malaysian oil and gas company Petronas that pulled in $6bn from investors through an issuance of up to 40 years.
But the wave of borrowing also comes at a time of emerging signs of financial stress in the region.
In April, Singapore oil trader Hin Leong filed for bankruptcy protection, with more than 20 of its creditors owed $3.85bn. Economists at ANZ said more companies in the region could be at risk of default, particularly in highly leveraged sectors such as energy in Singapore and South Korea.
Analysts at Moody’s Investors Service have significantly raised their expectations for regional corporate defaults in 2020, to 6.4 per cent among non-investment grade bonds. The coronavirus outbreak “will lead to a substantial weakening of the credit quality of some Asian companies and thus an increase in default risk”, they said.
But not everyone is pessimistic. Charles Macgregor, head of Asia at credit research firm Lucror Analytics, said while defaults could be more likely in lower-rated parts of the market — such as Indian and Indonesian companies — he was optimistic about Asian economies’ recovery following the pandemic.
“Some people try to be sensationalist and overstate the potential problem, my view is there will be an uptick [in defaults] . . . but my gut feeling is it won't be too bad.”
By Primrose Riordan and Thomas Hale in Hong Kong