Given the strong appetite of private banks for more high-yielding assets, bond transactions in Asia have provided them with a steady stream of target investments early in the year, new data indicates.

Primary bond market activity so far in 2013 has been dominated by high yield borrowers (sub-investment grade rated), in particular by Hong Kong and Chinese real estate companies, which account for roughly half of the total US dollar supply, data from the International Financing Review suggests. Private banks have capitalised on these investment opportunities, as reflected by their strong demand and high percentage allocations on such deals.

Several deals were 30 - 60 per cent allocated to private banks including Chinese property developer, Caifu Holdings (55 per cent) and Hong Kong real estate firm, Lai Sun Development (42 per cent).

In line with trends seen towards the end of last year, borrowers (both Asian and international) are increasingly trying to take advantage of the strong pool of liquidity amongst Asian private investors, to raise their required funding. This dynamic has opened the door to high yield issuers that may historically have found it difficult to access the primary debt markets, including the borrowers mentioned above.  

Additionally, the market  has seen international borrowers offering structured deals which offer higher-yields and are specifically targeting private banks. A recent example was a dollar perpetual transaction for Chung Kong Holdings, one of Hong Kong’s largest conglomerates, which saw a 60 per cent uptake by private banks.   

As previously reported by this publication, private banks and other firms catering to high net worth clients have snapped up a large chunk of new renminbi-denominated debt recently, attracted by valuations and long-term potential as an asset class (source: Nikko Asset Management).

But while the RMB-based debt market has come a long way in a short period of time as a market, investors still demand a premium when compared to equivalent US debt maturities, which may seem perplexing given the US’s immense fiscal woe, investors note.