Asia’s bond market at record high

HONG KONG: Asia Inc’s scramble to lock in low interest rates and investors’ thirst for a steady stream of income have boosted perpetual bond issuance in the region to a record this year, led by a clutch of jumbo deals from ChemChina to Japan’s SoftBank.

Asian corporates outside Japan issued US$18.2 billion (RM78.08 billion) of perpetual bonds so far this year, compared with US$16.7 billion for all of last year and 2014’s record of US$17.95 billion.

The bond market boom looks set to continue as more companies, including Malaysian oil services firm Yinson Holdings and Singaporean healthcare provider Parkway Pantai, wait in the wings to take advantage of investor demand for yield and a narrowing price gap with senior debt.

“We believe the current low interest market conditions increase the opportunity for prospective issuers to lock in their funding, including through perpetual bonds,” said Richard Fung at Golden Agri-Resources Ltd.

Golden Agri-Resources has tapped a variety of sources for funding its business but has yet to issue perpetual bonds.

A perpetual bond has no maturity date and issuers pay a coupon forever, though they do not have to redeem the principal. Some have features, which address the concerns of investors, who do not want to hold unlimited maturity bonds.

These include issuers’ right to redeem the bonds on a fixed date and step-up features requiring them to pay a higher coupon if the call is not exercised, both incentives for a fixed date redemption.

In accounting terms, the bonds are classified as equity — an attractive prospect for Asia’s more indebted companies.

SoftBank raised US$4.5 billion last week in the largest-ever junk perpetual bond deal.

“Demand for yield product is so strong in Asia that issuers are testing out new structures, and increasingly ones which are strongly in the issuers’ favour,” said Lombard Odier fund manager Dhiraj Bajaj.