Debt markets in the Asia-Pacific region (excl. Japan) (APAC) delivered strong gains in 2021, with combined high yield bond and leveraged and non-leveraged loan issuance rising from US$422.3 billion in 2020 to US$498 billion in 2021.
Overall issuance climbed despite ongoing pandemic-induced disruptions and dislocation in China’s real estate market—a key sector for the region’s debt markets. A buoyant loan market and revival in private equity (PE) activity counterbalanced these headwinds to drive the year-on-year increase.
Loans drive market
Leveraged and non-leveraged loan issuance in APAC increased by 24% in 2021, year-on-year, from US$332.5 billion to US$412 billion. Activity levels in the final quarter of 2021 proved particularly robust, with issuance reaching US$119.4 billion in Q4 2021, up 44% on Q4 2020 figures.
New money and refinancing loan deals both showed strong gains in the region, with both climbing by approximately 25% (new money) and 23% (refinancing) year-on-year, to US$161 billion and US$249.7 billion for 2021, respectively.
Issuance for PE-backed buyout deals was especially ebullient in 2021, almost doubling year-on-year to US$18.4 billion and offsetting a 19% drop in issuance for non-sponsor driven M&A.
PE and institutional M&A deals were the main drivers for the market. Notable transactions included KKR’s AUS$1.51 billion-equivalent term loan B (TLB) to fund its acquisition of a 55% stake in wealth management business Colonial First State Investment from Commonwealth Bank of Australia, while in Japan CVC Capital Partners secured a package of senior and mezzanine facilities to fund its US$976 million acquisition of Try Group, Japan’s biggest provider of online tutoring.
Infrastructure deal flow has also spurred issuance, with Deutsche Bank acting as mandated lead arranger on a US$350 million debt financing for the Indonesian subsidiary of Asia-focused tower business EdgePoint, backed by infrastructure investor Digital Colony. In addition, infrastructure investor DigitalBridge secured lender support for its US$750 million carve-out of PCCW’s Hong Kong and Malaysia data center assets.
PE activity may continue to drive issuance in 2020, particularly in Japan, where leveraged buyout deal value surged 3.9x quarter-on-quarter in 2021, reaching US$7.6 billion across 23 transactions, according to Mergermarket.
China’s loan market, as ever, was very active in the region, according to Debtwire Par, with issuance reaching US$100 billion despite the challenging real estate sector.
Deals like the US$1 billion bridge loan to support Inner Mongolia Yili Industrial Group’s planned purchase of Ausnutria Dairy, a goat milk formula producer listed in Hong Kong; and the HK$15.9 billion bridge loan for JD Property Group’s proposed purchase of China Logistics Property, kept China’s loan market busy. Tech giant Alibaba, meanwhile, agreed an extension and upsize to its 2017 facilities, worth an aggregate US$6.5 billion in a senior secured revolving credit facility.
Loan activity in the region also received a lift from lender appetite for green and sustainability-linked facilities. In Singapore, real estate issuer Asia Square Tower 1 secured a SG$2.1 billion five-year green loan and Hong Kong property group Sun Hung Kai raised a HK$8.65 billion four-year sustainability-linked loan.
Real estate weighs on high yield
Unlike in the loan space, high yield activity in APAC was directly impacted by headwinds in China’s real estate sector.
The country’s high yield market has accounted for the lion’s share of high yield issuance in the region, historically, with real estate the core contributor. In 2020, Chinese real estate alone accounted for just under two-thirds of the US$89.9 billion of high yield issuance in APAC.
The challenges in the Chinese real estate market saw high yield borrowing by Chinese real estate issuers decline notably in 2021. Activity in the real estate sector was particularly soft in the second half of the year, with issuance in Q3 and Q4 coming in at only US$7.3 billion and US$2.3 billion respectively, according to Debtwire Par, versus issuance of US$17.6 billion in Q1 and US$11.3 billion in Q2. Many high yield bond managers in the region closed their 2021 books early, choosing instead to wait until the real estate space stabilizes.
This drop, however, was mitigated by strong activity in other sectors. For example, increases in energy sector high yield issuance and gains in industrials and financial services offered a soft landing.
Notable deals outside of real estate that successfully accessed high yield investors in the region included Medco Laurel Tree, an Indonesian oil and gas company, which secured a US$394 million high yield bond.
Overall high yield issuance in APAC slid from US$89.9 billion in 2020 to US$86.1 billion in 2021.
Loan market to lead activity
Moving into 2022, loan markets in APAC are expected to continue driving leveraged finance activity until the real estate sector settles down.
The TLB market in APAC has grown rapidly in the past year, climbing 152% year-on-year to US$10.2 billion. Softbank-backed hospitality group OYO raised the first ever TLB by a company in South Asia in 2021 with a US$660 million five-year TLB. In addition, at the end of 2021, Byju, an India-based provider of online educational services and materials, completed a five-year US$1.2 billion cov-lite TLB that will be used to fund growth in North America and other potential strategic opportunities.
Growing appetite for green and sustainability-linked loans, which saw a five-fold rise in issuance in 2021, will provide additional momentum in the loan segment.
