28 Nov, 2023
Chinese banks to raise more debt after driving October's APAC issuance rebound
By Aditya Saroha and Marissa Ramos
Chinese banks' capital raising looks set to rise
This comes as the country's banks heed government calls to lend more to support real estate developers and China's economic growth — and in the wake of September's debt issuance hitting a 21-month low.
Chinese banks' debt issuance accounted for more than half of the $22.05 billion of debt capital Asia-Pacific-based banks raised in October, according to data compiled by S&P Global Market Intelligence on a best-effort basis. This was the highest monthly amount since the $26.42 billion raised in January.
The October total of $24.41 billion for debt and equity issuance combined was the highest amount the region's banks have raised since March, and the second highest this year.
Agricultural Bank of China Ltd.'s $8.20 billion yuan-denominated Tier 2 bonds and Bank of China Ltd.'s $3.42 billion bonds were the largest offerings in October.
Chinese banks will likely continue raising funds in the debt market to support loan issuance targets for private real estate developers that were reportedly set by authorities recently, Renee Xiong, partner at global law firm Sidley Austin LLP, said via email.
"It appears that authorities are continuing to implement various measures to ensure entrenched recovery and foster sustainable growth of the economy, which should make raising funds in the debt markets more straightforward," Xiong said.
Xiong was referring to a Nov. 22 Bloomberg News report that Chinese regulators were drafting a list of 50 property developers that would be eligible for a range of financing. The list, according to sources the news outlet quoted, would guide financial institutions as they consider supporting the real estate industry via bank loans, debt and equity financing. Regulators also reportedly told banks and other financial firms to meet all reasonable funding needs of the developers.
Separately, China is reportedly considering allowing banks to offer unsecured short-term loans to some developers for the first time. The move is part of new measures aimed at supporting the nation's real estate industry, according to the Bloomberg report.
The reports came as China's economy is yet to fully rebound from the twin impacts of the COVID-19 pandemic and a slowdown in the real estate sector. The economy is, however, showing signs of recovery. GDP grew 4.9% year over year in the third quarter, with expectations that the world's second-biggest economy will close 2023 at around the official target of about 5.0%. The real estate sector, which makes up nearly a quarter of China's GDP, continues to face elevated credit risks.
October spike
Xiong said one of the reasons for the October spike in capital raising could be Chinese authorities' push for banks to enhance their lending capabilities.
"In addition, there have been various economic stimulus measures such as interest rate cuts and initiatives to boost housing demand," Xiong said. "While these stimulus measures have led to a limited impact on the real estate sector so far, anticipated additional measures or initiatives to support this sector may have prompted the banks to prepare for enhanced lending activities."
In addition to Chinese lenders, South Korean and Japanese banks issued debt instruments to raise capital in October, led by The Korea Development Bank's US dollar-denominated bond offerings worth $2 billion. Japanese lenders Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Trust Bank Ltd. also tapped debt capital markets, raising $750 million and $528.8 million, respectively, in the month.
