Taiwan’s new issuance of corporate bonds fell in the first half of the year from last year, with the volume poised to drop further in the coming quarters, Taiwan Ratings Corp (中華信評) said yesterday.
The ratings agency said the slowing bond issuance reflects the volatility in global capital markets weighed by a potential reduction in bond purchases by the US Federal Reserve.
In addition, companies may feel less compelled to issue bonds to fund expansion at a time when economic growth in Asia including Taiwan appears lukewarm, the Taipei-based subsidiary of Standard & Poor’s Ratings Services said in a statement.
“New issuance volume dropped in the first half of 2013 — particularly in June 2013 — compared with the same period in 2012,” Taiwan Ratings said.
US Fed Chairman Ben Bernanke said on May 22 that the US central bank may start scaling back its debt purchase later this year, if the US economy looks likely to maintain its growth momentum.
According to statistics compiled by GRETAI Securities Markets, sales of corporate bonds in Taiwan stood at NT$350.84 billion (US$11.66 billion) in the second quarter, down 24.97 percent from NT$467.58 billion in the previous quarter.
Last quarter’s figure was also 18.95 percent lower than the NT$432.89 billion recorded in the second quarter of last year, the statistics showed.
However, Taiwan Ratings said the movement of credit spreads in Taiwan — defined as the yield difference between five-year non-government and government bonds — would remain limited compared with the global average over the next six months.
“While global market volatility and sluggish regional demand could slow new bond issuance over the next few quarters, we expect the island’s bond market to be less volatile to global events over the same period,” Taiwan Ratings president Chang Hwa-ping (張華平) said.
However, as the Directorate-General of Budget, Accounting and Statistics last week lowered Taiwan’s GDP growth forecast to 2.31 percent this year, from the 2.4 percent it forecast in May, while other Asian economies are also facing challenges in investment and export growth, lower-rated issuers, such as those rated “twBBB” and below, will still be at a disadvantage in issuing bonds at favorable rates over the next few quarters, Taiwan Ratings said, citing investors’ smaller risk appetite for such speculative-grade bonds.
One bright spot are the Chinese yuan-denominated Formosa bonds, which Taiwan Ratings said made a promising start in the local capital market in the first half with five new issuances totaling 3.9 billion yuan (US$636.7 million).
“We expect Formosa bonds to earn increasing investor popularity amid widening deregulation of offshore yuan banking and increasing market demand for yuan-dominated investments,” Chang said.
Yesterday, the Financial Supervisory Commission said it is easing regulations to allow foreign issuers to sell foreign currency-denominated assets, including yuan-based Formosa bonds, in Taiwan.
Under the commission’s plans, foreign issuers will also no longer need to obtain the commission’s approval before launching Formosa bonds, and will only need to file reports afterward. The new rules are expected to take effect next week.
However, Taiwan Ratings said it would take time for Formosa bonds to offer a stable platform over the long term.
"Formosa bonds will need to attract a growing and diversified array of issuers as well as offer an expanded range of issue credit quality through the established regulatory structure to compete with other offshore yuan-denominated bonds such as Hong Kong's Dim Sum bonds," Chang said.