By Scott Murdoch
SYDNEY (Reuters) – Asian dollar bond issuance is expected to rise around 20% in 2025 over last year, driven by Chinese debt deals and as U.S. interest rate cuts make it more affordable for companies to issue dollar bonds rather than local currency debt.
In the first few days of 2025, at least $6 billion worth of dollar bonds were issued, LSEG data and term sheets reviewed by Reuters showed. Deals have been priced by the Export Import Bank of Korea and aluminium producer China Hongqiao Group.
“We are expecting about a 20% increase in dollar bonds out of Asia, not taking into account Japan or Australia, to reach about $220-$225 billion in 2025,” Rishi Jalan, Citigroup (NYSE:C)’s Asia Pacific debt syndicate head, said. Around $175 billion worth of dollar bonds were issued in 2024.
“To reach that level, a lot of guns will have to fire to meet that volume,” he said.
“So, we will need to see some of the big China tech names come back in size, a pick-up in issuance in India, there has been a lot of volume lost in India to local currencies and that will need to come back into dollars.”
Increased dollar issuance helps fund Asia-based companies’ expansion ambitions and nudges fees higher for major investment banks working as bookrunners on the deals.
Higher U.S. interest rates for most of the past two years had made it cheaper for many companies in Asia to issue bonds in their own currencies or rely on domestic bank funding rather than issue dollar bonds.
But the Fed reduced the policy rate by a full percentage point over its last three meetings of 2024, and is expected to keep the rate in the current range of 4.25% to 4.5% at the next meeting on Jan. 28-29.
China’s technology behemoths are predicted to lead the surge in dollar debt issuance this year, Jalan said. As a precursor, e-commerce firms Alibaba (NYSE:BABA) and Meituan raised a combined $7.5 billion via dollar bonds late last year.
The two tech giants raised money last year partially to pay down debt and access capital to fund future growth. Bankers expect that trend to continue in 2025.
DRIVING FORCE
China, an engine of growth for the dollar debt market in Asia, issued $77.1 billion worth of dollar bonds in 2024, according to Dealogic data, an 81% increase on the $42.5 billion raised one year earlier.
Despite the sharp rise, however, the volume remained well off the 2019 peak when $210.5 billion was raised, the data showed.
“High grade Chinese companies are able to issue now and those companies are more comfortable with where the rates are compared to 2023 and first half of 2024,” said Avinash Thakur, head of capital markets financing, Asia Pacific, at Barclays (LON:BARC).
“There will be issuance in tech, they have funding requirements and in the industrials sector,” he said.
Bankers said it was unlikely the country’s troubled property sector, a major issuer of junk bonds before a debt crisis hit the sector in 2021, will return to the markets anytime soon as it remains in turmoil.
“The sector is still under pressure, property prices continue to be down and debt levels are high,” Thakur said.
Elsewhere in the region, South Korean dollar bond issuance rose 14.5% in 2024 to nearly $50 billion but the current political instability could prompt investors to avoid deals in that market, said Jini Lee, a partner at law firm Ashurst.
“Investors looking to diversify away from U.S. investments and had wanted to invest in Asia may have looked towards India and Korea,” Lee said, adding that due to pessimism towards China, other Asian markets have gained popularity with investors from outside the region.
“Some investors may choose to wait for the political situation to stabilise before investing in South Korean companies so the market may be slightly muted prior to that.”
