Underpinned by dynamic economies, debt capital markets in India and South-East Asia are deepening and developing.
Both India and South-East Asia are among the fastest-growing regions globally. Growth is forecast to reach 7% and 4.7% next year respectively, compared to 2.2% and 1.2% in the US or Europe.
Fuelling this growth is strong domestic consumption with a young population and an expanding middle-class. As these countries prosper, so do their companies, spurring onshore and offshore financing needs.
India’s offshore debt capital market has seen a huge surge with G3 volumes more than doubling this year, driven by a compression of credit spreads. Notably, high-yield issuance now dominates the market, making up 73% of volume. Strikingly, India now accounts for approximately 70% of the Asia ex-Japan high-yield bond market.
Issuers in sectors such as infrastructure, renewable energy and healthcare, including some debut names, are increasing the diversity on offer to global investors.
Meanwhile, regulatory amendments by the Reserve Bank of India limiting access to local liquidity for non-banking financial companies has also led many of them offshore.
Innovative structures such as the Shriram Finance securitisation this year; ReNew Power’s orphan SPV structure and the offshore non-convertible debentures deals for Greenko Energy increase offshore funding options for borrowers. But complexity and cost have limited the adoption by issuers, while foreign investors still have questions about how a default in such structures would play out.
In the diverse lands of South-East Asia, the picture is equally compelling yet nuanced. Regional G3 bond volumes are up by 45% this year to US$29bn, though this is far below the pre-pandemic peak of US$60bn. High US rates continue to lead borrowers to deepening local currency markets. Yet with US rate cuts on the horizon and issuers adapting to the new yield environment, an uptick in volumes is expected for 2025.
Investors in South-East Asia are navigating a complex landscape. Bond markets are at different stages of development in different countries, and lack of the diversity of India’s debt capital market, leading to concentrated issuance in certain sectors. Furthermore, the region has seen a few corporate governance blow-ups with investors complaining about weakening bond covenants and complicated ownership structures.
Both India and South-East Asia are navigating a fine balance between local market development and global integration. While challenges persist, particularly around governance, transparency and liquidity, the trajectory of these markets underscores their growing importance in the global financial ecosystem.
To see the digital version of this report, please click here
To purchase printed copies or a PDF of this report, please email shahid.hamid@lseg.com
