JPMorgan Sees BOC in Rearview as Asian Issues Boom: China Credit

Photographer: Lam Yik Fei/Bloomberg

Billionaire Li Ka-shing, chairman of Cheung Kong Holdings Ltd. and Hutchison Whampoa Ltd. China Petrochemical Corp., raised $5 billion in April in the biggest offering of notes in the U.S. currency by an Asian issuer since Hutchison Whampoa Ltd., the Hong Kong conglomerate controlled by Li, raised the same amount in November 2003. Close

Billionaire Li Ka-shing, chairman of Cheung Kong Holdings Ltd. and Hutchison Whampoa... Read More

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Photographer: Lam Yik Fei/Bloomberg

Billionaire Li Ka-shing, chairman of Cheung Kong Holdings Ltd. and Hutchison Whampoa Ltd. China Petrochemical Corp., raised $5 billion in April in the biggest offering of notes in the U.S. currency by an Asian issuer since Hutchison Whampoa Ltd., the Hong Kong conglomerate controlled by Li, raised the same amount in November 2003.

Competition to arrange global bond sales in Asia is heating up as Chinese banks take advantage of their compatriots’ dominance of fundraising in the region.

Bank of China Ltd.’s 3.7 percent market share ranked 10th in the first half as Chinese lenders comprised seven of the top 30 sale managers, the highest on record, according to data compiled by Bloomberg. HSBC Holdings Plc, Citigroup Inc. and JPMorgan Chase & Co. were the top three arrangers, even as Chinese issuers accounted for more than 50 percent of the $106.4 billion-equivalent of issues denominated in either dollars, euro or yen in Asia ex-Japan.

“The market has definitely become more competitive and you’ve seen the new entrance of Chinese banks,” said Mark Follett, the Hong Kong-based head of high-grade debt capital markets for Asia ex-Japan at JPMorgan, whose 8.6 percent market share trailed HSBC’s 12.8 percent and Citigroup’s 10.8 percent. There’s “still a clear separation between the top five or six players and the rest,” he added.

Banks from Asia’s largest economy have raised their share of underwriting business to 9 percent from 4.4 percent five years ago as Chinese companies involve them in their offshore push. Dollar, euro and yen bond sales in Asia will set another record in 2014, beating 2013’s $137 billion, the top five ranked arrangers say. Sales of bonds in yuan outside China are also heading for an all-time high.

Leading Role

“We aim to maintain the leading role in the offshore renminbi market and all the Chinese issues, leveraging our relationships in the Dim Sum market into the G3 currencies,” Tony Wang, deputy general manager for global markets at Bank of China (Hong Kong) Ltd., said in a July 10 interview. “There are more Chinese companies expanding in overseas markets and picking Hong Kong as a funding platform. As a Chinese bank with international experience, we’re able to understand their needs and the global dynamics.”

China’s influence in the region’s international bond market has grown, with the country’s borrowers making up 60 percent of sales last quarter versus 47 percent the first three months of 2014, data compiled by Bloomberg show. China’s 10 biggest issuers make up 13 percent of JPMorgan’s Asia Credit Index, which covers 324 companies around the region, Moody’s Investors Service said in a June 23 report.

Global Footprint

“This is further amplified when taking into account the level of state ownership that exists behind many of the country’s bond issuers,” said Laura Acres, a Hong Kong-based analyst at Moody’s. “The China-based sub-index is skewed toward real estate, oil and gas and quasi-sovereigns, which together account for 20.4 percent of total exposure.”

China Petrochemical Corp., the parent company of Asia’s largest oil refiner, raised $5 billion in April in the biggest offering of notes in the U.S. currency by an Asian issuer in more than a decade. The amount matched a sale in November 2003 by Hutchison Whampoa Ltd., the Hong Kong conglomerate controlled by Li Ka Shing, Asia’s richest man.

That same month, Cnooc Ltd., China’s largest offshore explorer, sold $4 billion of bonds and Tencent Holdings Ltd., Asia’s biggest Internet company, priced $2 billion of debt, making it the busiest month on record for dollar bonds in the region.

Some banks counter that as transaction sizes swell, bond-sale managers increasingly need a global footprint.

HSBC No. 1

“Asian deals are being distributed more globally, especially in the high-grade space where we’ve seen U.S. investors in particular increasing their appetite for Asia,” said Hital Desai, a Hong Kong-based director in the Asia debt syndicate team at Bank of America Corp.’s Merrill Lynch unit. “Having a global distribution platform really allows us to connect the dots for both issuers and investors.”

Bank of America ranked fifth the first six months of the year, with a 6.9 percent market share that lagged Deutsche Bank AG’s 7.4 percent. The next highest ranked Chinese bank after Bank of China was Industrial & Commercial Bank of China Ltd. with 1.6 percent, followed by Citic Securities Co. with 1.1 percent.

HSBC has held the No. 1 place since 2010, helping to arrange 11.4 percent of sales in all of 2013 and 13.9 percent in 2012.

“Issuers across the region look to us for our consistency, innovative financing ideas and the full global reach of our platform,” said Alexi Chan, the head of HSBC’s Asia-Pacific debt capital markets team. “We’re on track for another record year in Asian G3 currencies, assuming the current stable market conditions continue.”

More Banks

Along with deal size, the list of banks on larger trades is also getting longer. China Petrochemical, known as Sinopec Group, picked 13 banks to underwrite its bond offering this year compared with 10 in 2013.

The flow from Chinese borrowers looks set to continue into the second half as property developers press on with their debt offensive. Shenzhen-based Redco Properties Group Ltd., rated B, five levels below investment grade, by Standard & Poor’s, began bond-investor meetings in Hong Kong and Singapore last week, people familiar with the matter said. The company hasn’t tapped the U.S.-currency market previously, Bloomberg data show.

“With ongoing low rates, the second half is going to be a busier one for high yield,” said Deutsche Bank’s Singapore-based Jacob Gearhart, the head of global risk syndicate for Asia. “I also wouldn’t rule out the class of 2011, five-year non-call three, issuers seeking to refinance.”

To contact the reporters on this story: Tanya Angerer in Singapore at tangerer@bloomberg.net; Fion Li in Hong Kong at fli59@bloomberg.net

To contact the editors responsible for this story: Sandy Hendry at shendry@bloomberg.net; Katrina Nicholas at knicholas2@bloomberg.net Katrina Nicholas

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