The global economy continues to endure the damage brought about by Covid-19. The repeated spikes in infection cases have stalled economic recovery as many businesses are forced to stop operations, and more government resources are allocated to fortify the pandemic defences at the expense of funding investments to get the economy back on track. For several countries, this requires additional borrowings, which means increasing debt servicing costs and putting more pressures on government fiscal spending.
Exacerbating these challenges are the rising inflation and impending higher interest rates in 2022. The US Federal Reserve has outlined plans to reduce its bond-buying programme as it shifts its strategy to contain inflation, and other central banks have started to unwind their monetary policies that they’ve adopted in response to the health crisis.
Asia has benefited from the pandemic-era stimulus as manifested in the robust deal flows witnessed across equity and debt capital markets in 2021. According to Refinitiv, an LSEG business, issuance in equity capital markets (ECM) in Asia, outside of Japan and Australasia, amounted to almost US$463 billion, up 21.5% compared to US$381.16 billion in 2020. The total amount raised in initial public offerings (IPOs) surged 42.9% to US$160.77 billion in 2021 from US$112.50 billion in the previous year. Follow-on offerings accounted for about half of the total ECM volume at US$234.43 billion, up from US$211.49 billion in 2020, while issuance of convertible bonds rose 18.6% to US$67.79 billion from US$57.17 billion during the same period.
A testament to this strong performance was the fact that some of the largest ECM deals in the world in 2021 came out of Asia such as Prosus’ US$15 billion accelerated offering in Tencent Holdings and the combined US$6.9 billion convertible bond and the New York Stock Exchange IPO by Singapore-headquartered tech conglomerate Sea Limited. The other mega deals included the US$6.6 billion placement by Chinese delivery company Meituan, the US$6.5 billion equivalent rights offering by Indonesian lender Bank Rakyat Indonesia and the US$6.2 billion Hong Kong IPO by Chinese social video company Kuaishou Technology.
Debt capital markets (DCM) transactions also held up well in 2021 amid the challenges facing the Asia high-yield space on the back of troubles confronting the Chinese real estate sector. Total Asia G3 bond issuance, outside of Japan and Australasia, reached US$372.95 billion, or just a shade under the record volume of US$374.75 billion in 2020. The high-yield bond market posted a lower issuance volume of US$65.68 billion in 2021, compared to US$70.18 billion a year earlier, with China’s total offerings plummeting from US$44.53 billion to US$35.40 billion in 2021.
The strong capital markets’ activity came as issuers and investors have to deal with elevated regulatory risks in China, which saw technology, education and property stocks being hammered, with many IPOs trading under water. Tighter policy restrictions have also squeezed highly leveraged property developers, a number of which saw their ratings downgraded multiple times in 2021 on the back of their failure to make debt payments, worsening liquidity or higher probability of default.
What has been dominating the DCM discussions is the proliferation of ESG-labelled bonds – green, social, sustainability and sustainability-linked bonds (SLB) – whose total issuance, according to Refinitiv, more than doubled to US$82.50 billion in 2021 from US$40.28 billion in 2020. Several banks have increased their commitments to sustainable financing, thus broadening the ESG debt market in the region. This comes as issuers have embraced sustainability-linked financing, connecting their sustainability performance targets (SPTs) to achieving different objectives such as reducing their greenhouse gas emission intensity or increasing their renewable energy procurement mix.
This financing facility is usually linked to sustainability margin/coupon adjustment mechanism. For SLBs, failure by issuers to meet their SPTs at the pre-determined period could mean a step up in coupon payments, for instance.
The enhanced commitment to sustainable finance and the strong growth in the ESG debt market is heating up the competition for The Asset Triple A Sustainable Capital Markets Awards. Six banks are nominated for the Best ESG bank award, led by the 2020 winner BNP Paribas. The other banks shortlisted are Credit Suisse, DBS, HSBC, ING and Société Générale.
Also up for grabs is the Best sustainable finance adviser award with eight banks nominated for the accolade – BNP Paribas, Citi, Credit Agricole CIB, Credit Suisse, DBS, Deutsche Bank, HSBC and Standard Chartered. The same group of banks is likewise nominated for the Best green adviser award. For the Best bank award, the nominees are Citi, DBS and HSBC.
As in previous Triple A Sustainable Capital Markets Awards, the winners of these prestigious awards, plus the other major categories, will be announced Oscars-style during the awards’ ceremony to be held in March 2022.
In the meantime, the outright award winners in sub-advisory categories are Credit Suisse for commodities, financial institutions group (FIG), real estate and TMT, while Citi secures the accolades for consumer goods, new economy and health/pharmaceutical. HSBC wins the honours for renewable energy and transport, while BNP Paribas is voted as the Best social impact adviser. Sustainalytics is dominant in winning the Best second-party opinion provider award.
For the complete list of winners and nominees, please click here.
A virtual awards ceremony will be held sometime in 2022. Please reserve your place by contacting email@example.com.