Sustained expansion in Asia’s US-dollar denominated bond markets looks set to continue, with a recent record-breaking run expected to push the size of the Asia-ex-Pacific dollar bond universe to a total value of $US1 trillion by 2020.
Australian bond issuers will be among the beneficiaries, as they seek to tap into new pools of liquidity. Asian investors seeking stability, diversity and the potential for alpha – performance in excess of benchmarks - in the world’s fastest-growing region are another key force.
" [The run is] expected to push the size of the Asia-ex-Pacific dollar bond universe to a total value of $US1 trillion by 2020."
Often referred to as the ‘Regulation S’ market (or, ‘Reg S’ for short), Reg S provides a ‘safe harbour’ exempting security offerings from some registration requirements, allowing global and regional corporates to offer US dollar denominated debt securities outside the US, issued from an EMTN programme allowing issuers to be flexible and capture demand with minimal disclosure requirements.
Deal volumes in the Reg S market in Asia broke records in 2017, up 67 per cent year-on year to $US257 billion through November and heading toward $300 billion. In the year to that time, 11 Australian corporate issuers had sold bonds in excess of $US10 billion combined.
The issues span a range of industries across investment grade, high yield and unrated names, and have access to tenors of five-, 10-, 20-year and even perpetual bonds.
Today, even as local Asian governments from India to Indonesia encourage the development of their own bond markets, the region’s expanding pool of investors want more exposure to US dollar assets as they search for diversification, higher yields and lower risks.