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Asian hybrid bond issuance soars

Asia’s first corporate hybrid deal was in 2006, according to Dealogic, but issuance in the region only took off in 2010 and 2011, with about $5bn of issuance in each of those years.  In the US and Europe, corporate hybrid issuance reached a peak in the boom years running up to the global financial crisis but has since abated substantially.

Hybrid bonds combine features of both debt and equity.  Hybrids are perpetual securities that allow the issuer to defer coupon payments under certain circumstances.  Unlike senior bonds, in which both principal and interest must be paid to investors according to a fixed schedule.  Further, senior bonds have maturity dates, hybrids have ‘call’ dates, which leaves the repayment of principal at the issuer’s discretion.

The attraction of hybrid bonds to the issuers is that they can be structured to count as equity rather than debt on their balance sheets. That means the issuer is able to raise capital without diluting its equity or damaging its credit rating.

Asian corporates have issued $2.3bn of hybrid bonds since the start of January, the best start to the year on record and almost half the total issuance in the region for the whole of 2011, according to Dealogic.

Most of the deals this year have been sold to wealthy individuals through private banks in Singapore.   According to Sean McNeils, head of the financing solutions group for Asia at HSBC, on average, Singapore issuers have been able to issue hybrid debt at about 150 basis points above the cost of their senior debt.

Example of Hybrid bonds is Genting, issued S$1.8bn of perpetual bonds yielding 5.125% at the end of February, the biggest such deal from Singapore in history.

Source:  Financial Times, 2012-03-07, “Asian Hybrid Bond Issuance Soars”