When the going gets tough, the tough get going. That was the mantra for a number of issuers and deal arrangers during the challenging year of 2023, when the US Federal Reserve continued raising interest rates to ease inflation and a number of Black Swan events emerged such as the Silicon Valley Bank crisis and the Credit Suisse collapse.
The volatile and uncertain environment had a significant impact on deal activity, which continued to remain sluggish in certain markets and asset classes. The higher-for-longer interest rate regime prompted a 20% drop in G3 bond volumes in 2023 compared to the year before, according to Bloomberg data, with Chinese issuers taking a back seat to their South Korean peers who remained active in the international markets.
The higher cost of capital, meanwhile, opened up opportunities for local currency bond markets to flourish, resulting in an 11% increase in onshore financing. One notable example of this was in Vietnam, where the Bank of Investment Development of Vietnam issued a 2.5 trillion dong (US$123.5 million) green bond, the first bank in the country to issue a green bond in compliance with the Green Bond Principles of the International Capital Markets Association (ICMA).
It was a similar story in the syndicated loan market, where loan volumes continued a downward trend which started in 2021, ending the year down by around 12%, according to data from Refinitiv. Many borrowers adopted a wait-and-see approach amid the rate hikes, geopolitical tensions and lower M&A activities in the region. Nevertheless, there were a few bright developments in this space, including the emergence Term Loan B facility in the Asian market and expansion of the lending distribution base to non-Asian borrowers. Another market that showed notable activity during the period was India, where a flurry of financial sponsor-led LBO transactions took place.
One notable loan syndication deal was Reliance Industries/Reliance Jio’s US$7.45 billion equivalent syndicated term loan facilities, the largest-ever syndicated loan from India that was fully underwritten and attracted the largest bank group for a syndicated loan from Asia-Pacific.
M&A activity in the region also saw a nearly 20% drop in 2023 due to a number of factors, such as the higher cost of capital and geopolitical tensions. The deals that were able to get done in the market focused on companies looking to restructure their respective businesses towards high-growth industries such as renewable energy, data centres or electric vehicles.
Underperformance in several stock markets in Asia has also prompted several companies in the region to go private and delist. An example of this was the privatization of Metro Pacific Investments Corporation by a consortium of bidders, which valued the integrated infrastructure company at US$7.5 billion, the largest equity value across all Philippine delisting tender offers.
Equity capital markets across Asia were volatile with varied performances depending on market. Outshining their regional peers, Japan’s Nikkei 225 closed the year 40% higher, while India’s NIFTY 50 rose by 20%.
The positive investor sentiment in India led to a flurry of initial public offerings in the market, with 123 companies going public last year, compared to 80 in 2022, according to data from Dealogic.
Mankind Pharma’s IPO, which raised 43.26 billion rupees, was a standout as it was able to ride out the wave of volatility, with the overall book more than 15 times oversubscribed and the stock closing 32.4% higher on its first trading day.
Conversely, markets such as Hong Kong continued to struggle with stocks underperforming in the wake of weaker-than-expected economic data coming out of China in the post-Covid era. The Hong Kong stock exchange, the largest bourse in terms of market capitalization in 2021, fell to fifth place behind India, according to Bloomberg data.
Despite all the market uncertainties, one encouraging note was the rapid development of sustainable finance which continued to evolve and become increasingly mainstream across a variety of markets and industries in Asia. Investors and issuers displayed a greater awareness of sustainability principles, of whether sustainability KPIs (key performance indicators) were ambitious enough and whether step-up or step-down structures were appropriate.
According to data from Moody’s Investors Service, sustainable bond issuance in Q3 2023 receded around the globe, except in the Asia-Pacific region where it grew by 1%. Social bonds gained more popularity, with Hong Kong Mortgage Corporation’s US$2.56 billion equivalent multi-currency social bonds becoming the largest social bond issuance out of the region in 2023. Net proceeds from the issuance were mainly used to finance or refinance loans under a special 100% loan guarantee of the SME financing guarantee scheme used to alleviate cash flow pressure on small and medium-scale enterprises. In Q3 2023 more than 60% of social bonds globally came from Asia-Pacific issuers.
ESG-focused issuers were varied across the region. The Republic of Indonesia, for example, issued its first blue bond denominated in yen.
Minor International’s €500 million (US$538.9) syndicated sustainability-linked loan was the first in the tourism and leisure sector in Thailand with key performance indicators on sustainability linked to the company’s commitment to reducing both Scope 1 and Scope 2 green gas emissions intensity as well as water withdrawal intensity.
As part of The Asset’s coverage of financial markets in the region we are pleased to reveal the bank and adviser nominees for the Sustainable Finance Awards 2024. To view the nominees and outright winners for several categories please go here.
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