Caspian Energy Journal Caspian European Club
Thursday, 28 March 2019 17:00

China slowdown to dampen APAC cross-border issuance

China slowdown to dampen APAC cross-border issuance

Slowing economic growth in China, lower capex and M&A and a weaker yuan will continue to weigh on cross-border issuance by Chinese corporates in 2019, contributing to a moderate fall in overall APAC cross-border issuance, Caspian Energy News ( reports with reference to Fitch Ratings.

The relaxing of some regulatory restrictions in India and capex plans of state-owned enterprises in Indonesia are likely to increase issuance from these countries, mitigating the potential drop in Chinese supply. However, unexpected outcomes of forthcoming elections in both countries could inhibit investor appetite in 2H19.

Fitch believes the same factors that led to the decline in APAC issuance in 2018 to USD207 billion, from USD228 billion in 2017, will remain in place in 2019. These include slowing global economic growth and lower capex, mainly in China, US interest rates remaining well above that of 2017, and a more risk-averse stance by investors - particularly for speculative-grade issuers. However, the pause in US Fed interest-rate hikes should support issuance, with activity picking up since January 2019, particularly by high-yield credits in Asian emerging markets.

China, which represents about half of total APAC cross-border issuance, was the main contributor to 2018's fall, with issuance out of the country declining by USD14 billion. Fitch expects cross-border issuance by Chinese corporates to fall moderately in 2019, but to still be around the USD100 billion level (2018: USD112 billion). Chinese corporates' onshore funding costs, which have fallen by around 120bp for investment-grade corporates over the past 12 months, are likely to fall further in light of consensus expectations for further cumulative cuts to the country's reserve ratio requirement during 2019. This is likely to lower demand for cross-border issuance, notwithstanding any one-off funding requirements, such as for M&A, which Fitch does not expect to be above 2018's level in any case.

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Person in charge of the newsline: Olga Nagiyeva 

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