Asia-Pacific Company Debt to Dwarf Developed Markets, S&P Says

Asia-Pacific Company Debt to Dwarf Developed Markets, S&P Says

Asia-Pacific corporate borrowing will exceed combined debt from the U.S., Canada, U.K. and euro zone in four years amid a surge in Chinese funding demand, according to Standard & Poor’s.

Non-financial entities in the region will probably borrow between $25 trillion and $27 trillion from 2013 to 2017, about half of the bonds and loans that will be sought globally in that period, S&P wrote in a report published today. That would boost Asia-Pacific debt to as much as $32 trillion by 2017, exceeding the projected $31 trillion total for the four North American and Western European economies, the ratings company said.

Issuers from Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Singapore, and Thailand have sold $113.5 billion of U.S. dollar-denominated bonds in 2013, the most ever raised within the first five months of a year, data compiled by Bloomberg show. Assets held by China’s banks swelled 17 percent from a year earlier to 141.3 trillion yuan ($23 trillion) as of March 31, the China Banking Regulatory Commission said on its website yesterday.“Growth in Asia-Pacific’s nonfinancial corporate debt has accelerated over the past five years, driven by China,” S&P said in the report. “Asia-Pacific’s banks, which provide nine-tenths of corporate financing in the region, have the capacity to take on this monumental financing task.”

Biggest Debt

China’s non-financial issuers may amass as much as $18 trillion in new borrowing and refinancing over 2013 to 2017, S&P said. That means the nation is forecast to overtake the U.S. as the world’s largest corporate debt market as soon as next year.

Alibaba Group Holding Ltd., China’s biggest e-commerce company, is marketing $8 billion of loans in general syndication, two people familiar with the matter said yesterday, asking not to be identified as the details are private.

Companies on the mainland and in Hong Kong have raised $43.2 billion selling bonds this year, surging from the $26.1 billion issued in the five months through May 2012, Bloomberg-compiled data show. State-owned Cnooc Ltd., the country’s biggest offshore energy explorer, led issuance with a $4 billion sale that was the biggest offering out of Asia in a decade.

A survey by Coface SA, the credit-insurance unit of French lender Natixis, conducted in the three months ended December 2012 showed 42 percent of its Hong Kong-based respondents and 56 percent of China-based participants reported an increase in overdue payments, according to an e-mailed statement yesterday.

Wall Cracks

“Given the rapid credit pace, it is not surprising that we are seeing some cracks in China’s corporate debt wall,” S&P wrote. Growth in Chinese corporate borrowing is likely to speed up in the foreseeable future, according to the credit assessor. “Although China is slowing compared to the prior decade, the economic growth trajectory is still high by global standards.”

China’s economic expansion unexpectedly slowed to 7.7 percent last quarter from a year earlier, losing momentum from the 7.9 percent acceleration in the previous three months. It will probably grow 8 percent this year, according to the median estimate of economists in a Bloomberg News survey.

Gross domestic product in Asia will rise 6.6 percent this year, compared with projected gains of 2 percent for the U.S., 1.6 percent for Canada, 0.8 percent for the U.K. and an 0.5 percent decline for the euro zone, separate Bloomberg polls show.

To contact the reporter on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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