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Asian banks' debt raising falls off cliff in October on China property concerns

Aggregate capital raised by Asia-Pacific banks via debt in October slumped to its lowest this year, as concerns grew over a potential spillover of the liquidity crunch in the Chinese property sector.

Banks in the Asia-Pacific region raised about $5.11 billion selling debt securities in October, led by Mitsubishi UFJ Financial Group Inc.'s $3 billion issue and Industrial & Commercial Bank of China Ltd. Hong Kong branch's $1 billion issue, according to data compiled by S&P Global Market Intelligence. The lull in capital raisings followed a surge in September when banks raised more than $26 billion through debt, making it the highest monthly total year-to-date.

Including Australia-based Judo Capital Holdings Ltd.'s $493.3 million IPO, the total capital raised by banks in October via both debt and equity amounted to $5.61 billion, the data show.

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"Asia-Pacific banks remained on the sidelines in October and issued lesser debt compared to a month ago as investors across the globe showed signs of worry amidst the worsening liquidity crunch in the Chinese property sector," Anish Ailawadi, global head of investment banking at research and analytics firm Acuity Knowledge Partners, told Market Intelligence.

Banks' debt issuance may stay subdued for the rest of the year as China's economy slows and parts of Asia face fresh COVID-19 outbreaks that may drag on economic growth and take a toll on the capital markets and investor sentiment, Ailawadi said.

Concerns grew over the potential spillover effects of heightened stress in the Chinese property sector following a spate of bond defaults by developers, including China Evergrande Group and Fantasia Holdings Group Co. Ltd. While analysts have said a default by Evergrande would not be China's Lehman moment, the U.S. Federal Reserve recently warned stresses in China's real estate sector could strain the financial system in the country, with possible spillovers to the United States.

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In addition to increased uncertainty, higher debt issuance in September and ample liquidity on banks' balance sheets may have damped demand for capital in October even though interest rates remained low, said Oi Yee Choo, chief commercial officer of Singapore-based digital securities exchange ADDX.

After the October "nadir," debt issuance by banks may rebound as they will need more capital to lend, Choo said. "Looking ahead, the economic outlook for the region as a whole remains strong, despite uncertainties from the pandemic, and inflation is on the rise," the executive added.