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Lower U.S. rates make dollar bonds more attractive

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China tech firms forecast to ramp up dollar bond deals

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China's dollar bond issuance jumped 81% in 2024

By Scott Murdoch

SYDNEY, Jan 8 (Reuters) - Asian dollar bond issuance is

expected to rise around 20% in 2025 over last year, driven by

Chinese debt deals and as U.S. interest rate cuts make it more

affordable for companies to issue dollar bonds rather than local

currency debt.

In the first few days of 2025, at least $6 billion worth of

dollar bonds were issued, LSEG data and term sheets reviewed by

Reuters showed. Deals have been priced by the Export Import Bank

of Korea and aluminium producer China Hongqiao Group ( CHHQF ).

"We are expecting about a 20% increase in dollar bonds out

of Asia, not taking into account Japan or Australia, to reach

about $220-$225 billion in 2025," Rishi Jalan, Citigroup's ( C/PN )

Asia Pacific debt syndicate head, said. Around $175 billion

worth of dollar bonds were issued in 2024.

"To reach that level, a lot of guns will have to fire to

meet that volume," he said.

"So, we will need to see some of the big China tech names

come back in size, a pick-up in issuance in India, there has

been a lot of volume lost in India to local currencies and that

will need to come back into dollars."

Increased dollar issuance helps fund Asia-based companies'

expansion ambitions and nudges fees higher for major investment

banks working as bookrunners on the deals.

Higher U.S. interest rates for most of the past two years

had made it cheaper for many companies in Asia to issue bonds in

their own currencies or rely on domestic bank funding rather

than issue dollar bonds.

But the Fed reduced the policy rate by a full percentage

point over its last three meetings of 2024, and is expected to

keep the rate in the current range of 4.25% to 4.5% at the next

meeting on Jan. 28-29.

China's technology behemoths are predicted to lead the surge

in dollar debt issuance this year, Jalan said. As a precursor,

e-commerce firms Alibaba ( BABA ) and Meituan ( MPNGF ) raised a

combined $7.5 billion via dollar bonds late last year.

The two tech giants raised money last year partially to pay

down debt and access capital to fund future growth. Bankers

expect that trend to continue in 2025.

DRIVING FORCE

China, an engine of growth for the dollar debt market in

Asia, issued $77.1 billion worth of dollar bonds in 2024,

according to Dealogic data, an 81% increase on the $42.5 billion

raised one year earlier.

Despite the sharp rise, however, the volume remained well

off the 2019 peak when $210.5 billion was raised, the data

showed.

"High grade Chinese companies are able to issue now and

those companies are more comfortable with where the rates are

compared to 2023 and first half of 2024," said Avinash Thakur,

head of capital markets financing, Asia Pacific, at Barclays.

"There will be issuance in tech, they have funding

requirements and in the industrials sector," he said.

Bankers said it was unlikely the country's troubled property

sector, a major issuer of junk bonds before a debt crisis hit

the sector in 2021, will return to the markets anytime soon as

it remains in turmoil.

"The sector is still under pressure, property prices

continue to be down and debt levels are high," Thakur said.

Elsewhere in the region, South Korean dollar bond issuance

rose 14.5% in 2024 to nearly $50 billion but the current

political instability could prompt investors to avoid deals in

that market, said Jini Lee, a partner at law firm Ashurst.

"Investors looking to diversify away from U.S. investments

and had wanted to invest in Asia may have looked towards India

and Korea," Lee said, adding that due to pessimism towards

China, other Asian markets have gained popularity with investors

from outside the region.

"Some investors may choose to wait for the political

situation to stabilise before investing in South Korean

companies so the market may be slightly muted prior to that."