Asia Bond Sales to Rise 10 Percent After Record Start: Citigroup

International bond sales in Asia will increase 10 percent in 2014 after the busiest start to a year on record, according to Citigroup Inc. (C), the top-ranked arranger in that period.

Offerings denominated in the G3 currencies of euros, yen or dollars in the region outside Japan total $30.1 billion since Dec. 31, or 23 percent more than in the same period of 2013, according to data compiled by Bloomberg. Note sales in emerging markets globally by contrast fell 17 percent to $137.5 billion. Indonesia hired three banks today to help arrange investor meetings starting Feb. 26, a person familiar said.

“G3 currency volumes in Asia will rise by about 10 percent this year,” said Amit Sheopuri, the Hong Kong-based co-head of debt capital markets at Citigroup. “Despite tapering, we’ve seen emerging-market Asia, unlike emerging markets in general, perform much better compared to 2013.”

Since the U.S. Federal Reserve announced in December it would begin cutting its bond purchases, yield premiums for dollar debt in Asia have narrowed 11 basis points to 278.6 basis points on Feb. 21, HSBC Holdings Plc indexes show. Spreads jumped to a one-year high of 339.7 on June 25 after plans to reduce stimulus were first mooted. U.S. currency borrowing costs averaged 4.4 percent on Feb. 19, the least since Nov. 1.

Indonesia Meetings

New York-based Citigroup has helped to arrange 15.1 percent of G3-currency bond sales in Asia this year, followed by HSBC with 11.8 percent and Bank of America Corp. with 10.4 percent. HSBC has topped the league table for every full year since 2009.

Deutsche Bank AG, Bank of America and Citigroup were hired by Indonesia’s government to arrange a series of bond investor meetings in Asia, Europe and the U.S., the person familiar with the matter said today, asking not to be identified because the details are private.

Citigroup was the only lender to help to arrange all three sovereign bond sales this year, for Indonesia, the Philippines and Sri Lanka. A total of $6.5 billion was raised in the five days ended Jan. 10, the region’s busiest week on record.

Citigroup is also topping the arranger charts for high-yield, or junk, corporate bond issuance in Asia outside Japan. It holds a 15.5 percent share of the market, followed by UBS AG with 14.9 percent and HSBC with 12.2 percent. In the same period of 2013, UBS ranked No. 1, followed by HSBC and Citigroup.

Bank Capital

Investors can also expect to see more bank capital issuance out of China this year in the dollar market, according to Sheopuri. Industrial & Commercial Bank of China Ltd. sold Asia’s first Basel III-compliant dollar-denominated bond in October last year. JPMorgan Chase & Co. forecasts China’s four biggest lenders will sell as much as $10 billion of Basel III debt offshore in 2014.

ICBC’s $500 million of 10-year notes are trading at 98.663 cents on the dollar today, after being sold to investors at 99.903 cents on the dollar on Oct. 2, according to Bloomberg-compiled prices.

AIA Group Ltd. (1299), the second-largest insurer based in Asia, may consider a sale of dollar bonds after meetings with fixed-income investors in the U.S. which start today. Citigroup, Deutsche Bank, HSBC and Morgan Stanley were hired to arrange those updates.

“Many of our debt issuers are clients across our franchise,” Sheopuri said. “This consistency of client coverage has contributed to a strong result.”

Total dollar bond issuance in the region jumped to $3.4 billion last week versus $800 million in the five days to Feb. 14. China Aluminum International Engineering Corp. sold $300 million of 6.875 percent perpetual securities on Feb. 21.

Credit Risk

The cost to insure corporate and sovereign bonds in Asia against non-payment declined today, according to credit-default swap traders.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan fell 2 basis points to 138 basis points as of 8:33 a.m. in Singapore, Standard Chartered Plc prices show. The gauge, which has ranged from 129.2 basis points to 153.5 basis points this year, is set to fall for the second straight day, according to data provider CMA.

The Markit iTraxx Australia index advanced 0.25 basis points to 101.5 as of 11:10 a.m. in Sydney, according to Citigroup prices. The benchmark, which has ranged from 96.7 basis points to 109.6 basis points this year, is set to increase for a fourth consecutive day, CMA prices show.

The Markit iTraxx Japan index was little changed at 76 as of 9:13 a.m. in Tokyo, Citigroup prices show. The measure is poised to touch its lowest level since Feb. 12 after dropping 6.6 basis points last week, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

Credit-default swap indexes are benchmarks for insuring bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.

To contact the reporter on this story: Tanya Angerer in Singapore at tangerer@bloomberg.net

To contact the editor responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net

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