Asia stares at another year of record bond issuance

* Region on track for US$85bn in dollar bonds by end-May

* Total 2013 volume may reach US$155bn

* S&P sees Asian bond market outgrowing US by 2017

May 22 (IFR) - Dollar bond issuance from Asia, excluding Australia and Japan, is on track to end May over US$85bn, a record, after two weeks of US$6bn-plus in fixed income supply and amid forecasts of a busy last week of the month. Issuance was at US$80.2bn for the year as of May 16.

The pace has been so intense that Asian bankers are starting to wonder how long it can last. They have been constantly revising their estimates upwards and some now expect volumes to top US$155bn this year. That would surpass the US$133.8bn booked last year. “Another record year,” said one banker in Singapore. “I don’t know how long this can last.”

If Standard & Poor’s is to be believed, the clip is nowhere near slowing down. Last week, the agency published research predicting that corporate debt outstanding in the Asia Pacific would surpass that of North America and Europe by 2017. China alone will account for a third of the US$53trn global corporate debt over 2013-17.

“China’s credit surge will propel Asia-Pacific’s corporate debt to levels exceeding the combined debt of Western countries comprising the US, Canada, eurozone (European Economic and Monetary Union), and UK,” Standard & Poor’s credit analyst Terry Chan wrote in the report.

The trend, though, is more than a regional one as emerging market (EM) debt is a fast-growing asset class globally. In a report last year, Barclays indicated outstanding EM corporate debt in hard currency had exceeded US$1trn, almost as big as the US high-yield market, which is the largest in the world for the asset class.

JP Morgan reached the same conclusion, saying that outstanding dollar-denominated bonds from EM corporates had reached about US$1.07trn by the end of 2012. Meanwhile, the domestic high-yield market in the US stands at around US$1.17trn, according to estimates from fund manager Neuberger Berman.

Neuberger Berman, in fact, is probably the latest example of how important an asset class EM debt has become. The employee-owned fund, which manages assets for some of the biggest pension funds in the US, last month hired a team to cover EM debt in its first foray directly into that asset class.

“EM corporate debt has become an asset class that is deep enough to warrant the attention of players that used to look at it only marginally before,” said Rob Drijkoningen, managing director of Neuberger Berman’s EM bond portfolio.

“Recent jumbo oil and gas deals reaffirm the thesis that the high-quality segment of EM is now formally part of ‘global credit’, a space that was once primarily dominated by only US, European and Japanese issuers,” said Robert Abad, emerging market specialist for fund manager Western Asset Management, referring to last week’s US$11bn-plus multi-tranche transaction from Brazilian oil giant Petrobras.

Asian bankers may wonder how long it will continue but for now it seems like they should get used to US$5bn-plus weekly issuance and US$150bn-plus annual tallies for dollar-denominated debt from the region. After all, the buyers seem as comfortable as ever with the asset class, and there is plenty of interest from issuers. (Reporting By Christopher Langner; editing by Nachum Kaplan)