2. Corporate bond markets activity in Asia
This chapter provides an overview of the use of market- and bank-based financing by Asian non-financial companies. It then provides trends in the use of corporate bonds in Asia and compares it with global trends. Furthermore, it shows trends in the use of corporate bonds by growth companies in the region and globally, focusing on their maturity, industry composition and credit quality.
In recent years, Asia has seen a rapid advancement in both corporate bond and public equity markets. As depicted in Figure 2.1, non-financial Asian companies have around USD 4 trillion in outstanding corporate bonds, equivalent to 11% of the region’s GDP. At the same time, Asian listed non-financial companies have a combined market capitalisation of USD 26 trillion, equivalent to 75% of GDP. However, significant differences exist among economies in the region. While the People’s Republic of China (hereafter ‘China’) leads in sheer volume for both non-financial corporate bonds and market capitalisation of listed non-financial companies, its ratios to GDP remain relatively modest compared to jurisdictions like Japan and Korea. Focusing on corporate bonds, financial hubs such as Hong Kong (China) are noteworthy. Moreover, countries like Thailand, Korea and Japan stand out as their outstanding non-financial corporate bonds represent 21%, 19% and 15% of their GDP, respectively.
Note: In this figure, "Asia" refers to the jurisdictions that participated in the OECD Survey, including 18 Asian jurisdictions and Australia.
Source: OECD Capital Market Series dataset, Bank for International Settlements, World Bank, LSEG.
Asian markets exhibit a pronounced dependence on bank financing. In Asia, bank credit extended to non-financial companies stands at 143% of GDP, much higher than the global number at 96% (Figure 2.1). Moreover, there are significant differences across economies. For instance, Hong Kong (China) and China have bank credit to non-financial corporations to GDP ratios at 264% and 185%, respectively. Additionally, Korea’s bank credit to non-financial corporations makes up over 175% of GDP. In Australia, Japan, Singapore, Thailand and Viet Nam, bank credit to non-financial corporations represents around 120% of GDP.
In the majority of Asian jurisdictions, market-based financing plays a secondary role compared to bank-based financing. Figure 2.2 shows the relationship between market-based financing and bank-based financing. Market-based financing is defined as the sum of the market capitalisation of non-financial listed companies and the outstanding amount of non-financial corporate bonds. Notably, despite the rapid development of both public equity and corporate bond markets in some Asian markets, corporations still rely heavily on bank financing. For example, market-based financing in China accounted for 69% of GDP in 2022, significantly less than bank credit which accounted for 185% of GDP. In Viet Nam, the scenario is even more pronounced: bank-based financing represents a substantial 126% of GDP, more than four times the contribution of market-based financing, which is just under 30%. Importantly, it is only in a few jurisdictions that market-based financing exceeds bank-based financing. In Japan, for example, both types of financing are highly developed. Non-financial companies’ capital sourced from public equity and corporate bond markets together accounts for almost 130% of GDP, a Figure slightly higher than the 122% attributed to bank-based financing. Meanwhile, in India, bank-based financing represents slightly over 50% of GDP, much lower than the contribution from market-based financing (80%).
Note: Market-based financing is defined as the sum of the market capitalisation of non-financial listed companies and the outstanding amount of non-financial corporate bonds. Bank-based financing is defined as bank credit to non-financial corporations.
Note: Hong Kong (China) is not shown on the graph since its values fall outside the limits of the graph with the market-based financing to GDP is 827% and bank-based financing to GDP is 264% of GDP.
Source: OECD Capital Market Series dataset, Bank for International Settlements, World Bank, LSEG.
Corporate bonds offer companies a way to diversify their financing sources and to access long-term financing. Since the global financial crisis, there has been a considerable increase in the use of corporate bonds by non-financial companies. Indeed, the global amount issued doubled from an annual average of USD 1 trillion before the global financial crisis (2000-07) to an annual average of more than USD 2 trillion in the period between 2008 and 2022. Globally, with the increasing use of corporate bonds, the outstanding amount of non-financial corporate bonds doubled from USD 7.7 trillion in 2008 to USD 15.4 trillion in 2022.
Following the outbreak of the COVID-19 crisis, corporate bonds served as an important source of financing for the non-financial corporate sector. In 2020 and 2021, global bond issuances by non-financial companies reached historical peaks of USD 3.3 trillion and USD 2.7 trillion, respectively. In 2022, in line with the tightening monetary policy, global bond issuance contracted by 36% with respect to the previous year and the volume issued by non-financial companies stood at USD 1.7 trillion.
Bond issuance in Asian markets has also significantly increased over the past two decades. The annual amount issued has grown from a relatively low level of USD 144 billion between 2000 and 2007 to USD 657 billion between 2008 and 2022. Annual capital raised via corporate bonds reached its peak (USD 1 trillion) in 2021, before contracting to USD 837 billion in 2022 following global trends (Figure 2.3, Panel A). Additionally, the outstanding amount of non-financial corporate bonds in the region reached USD 4.1 trillion in 2022 — more than four times the outstanding amount recorded in 2008 (Figure 2.3, Panel B). The Chinese corporate bond market has been the engine of this regional growth.
In line with the increasing use of corporate bonds by non-financial companies in Asia, the share of Asia in global corporate bond issuances and outstanding amounts increased significantly since 2000 (Figure 2.3, Panel C). In 2000, Asia’s non-financial corporate bond issuance represented only 16% of global issuance, whereas by 2022, Asian non-financial corporations issued half of the global amount. Similarly, Asia’s share in global outstanding amounts of corporate bonds increased from 17% in 2000, to 27% in 2022.
Over the past two decades, corporate bond markets have also been offering financing opportunities for smaller companies, particularly in Asia. An increasing number of growth companies have raised capital from regional corporate bond markets. Growth company bonds in this chapter are defined as issuances of less than USD 50 million.
The issuance by growth companies doubled in the period following the global financial crisis compared to the pre-global financial crisis period, from an annual average of USD 9.6 billion to USD 18.4 billion. Still, in 2022, the amount of corporate bond issued by non-financial growth companies only represented a very small share (2%) of global issuances, while representing one-fourth of the total number of corporate bond issuances. Notably, in the wake of the COVID-19 crisis, growth companies tapped corporate bond markets, increasing the volume issued by 32% compared to 2019 – the largest annual increase observed in the past two decades. In 2022, while global bond issuance contracted significantly, non-financial growth companies continued using this market, raising USD 39 billion. Globally, outstanding amounts of non-financial corporate bonds by growth companies stood at USD 121 billion in 2022.
Bond issuance by Asian growth companies has also increased significantly, particularly following the global financial crisis. The annual amount issued grew from USD 5.7 billion in 2000 to USD 33.3 billion in 2022 (Figure 2.4, Panel A). The non-financial growth-company bonds represented 4% of all corporate bond issuances in Asia in 2022 and 27% of the total number of bonds — higher than the growth-company bonds’ share in global numbers. Additionally, the outstanding amount of these bonds in the region was USD 90.5 billion in 2022 (Figure 2.4, Panel B). Chinese and Korean companies have been driving the observed growth in this market. Overall, the Asian growth-company bond market dominates at the global level (Figure 2.4, Panel C). In 2000, Asian non-financial growth-company bonds represented 44% of the global amount issued by non-financial growth companies whereas in 2022 this was 85%. Similarly, Asia’s share in global outstanding amounts increased from being 24% in 2000, to 75% in 2022.
In almost all Asian jurisdictions, except Japan and Singapore, corporate bond markets for growth companies have expanded since 2000 (Figure 2.5). While in Japan, the amounts issued between the 2000-11 and 2012-22 periods were similar, in Singapore, the overall amount issued in the second period contracted by 60%. China shows the largest expansion with an almost non-existent growth-company bond market in the 2000-11 period to issuing USD 68.3 billion during the latest period. In the 2012-22 period, Korea ranked first with the highest amount of growth-company bonds (USD 68.7 billion), followed by China, Thailand and India.
In line with the issuance trends, Korea and China had the highest amount of outstanding growth-company bonds in 2022 (Figure 2.6). Indeed, Korea and China together made up 74% of the Asian outstanding amounts in 2022, recording USD 34.4 billion and USD 32.2 billion, respectively. Thailand, India and Japan followed with outstanding amounts of around USD 4 billion, while the remaining jurisdictions had outstanding amounts of growth-company bonds below USD 3 billion.
Note: In this figure, "Asia" refers to the jurisdictions that participated in the OECD Survey, including 18 Asian jurisdictions and Australia.
Note: There is no information on growth companies’ corporate bond issuances from Bangladesh, Cambodia, Mongolia and Sri Lanka, and the amounts are too small for Lao PDR and Philippines. Therefore, these jurisdictions are excluded from the figure.
Source: OECD Capital Market Series Dataset, LSEG, see Annex B for details.
Note: In this figure, "Asia" refers to the jurisdictions that participated in the OECD Survey, including 18 Asian jurisdictions and Australia.
Note: There is no information on growth companies’ corporate bond issuances from Bangladesh, Cambodia, Mongolia and Sri Lanka, and the amounts are too small for Lao PDR, Pakistan and Philippines. Therefore, these jurisdictions are excluded from the figure.
Source: OECD Capital Market Series Dataset, LSEG, see Annex B for details.
Growth-company bonds typically have shorter maturities compared to those issued by larger companies. This difference is mostly influenced by the risk profile of these companies. Investors perceive growth companies as riskier due to uncertainties associated with their evolving business models and market positions. Consequently, they tend to demand higher interest rates for longer maturities to compensate the additional perceived risk. As a result, growth companies often opt for shorter-maturity bonds to secure financing more feasibly.
Globally, while large-company bonds have an average maturity of 9 years, growth-company bonds have a much shorter average tenor of just 4.4 years (Figure 2.7). In Asia, the maturity gap between large- and growth-company bonds is narrower than the one observed at the global level. Growth-company bonds have an average maturity of 4.2 years, only 1.2 years shorter compared to large-company bonds. India, Singapore and Hong Kong (China) exhibit the largest gap in maturity between large- and growth-company bonds, with growth-company bonds issued in 2022 maturing about 6 years before than those issued by large companies. Interestingly, in Australia and Viet Nam, corporate bonds issued by growth companies (driven by few issuances) have longer maturities than those issued by large firms. Korea has one of the largest markets for growth-company bonds allowing growth companies to borrow at maturities comparable to large companies.
Note: In this figure, "Asia" refers to the jurisdictions that participated in the OECD Survey, including 18 Asian jurisdictions and Australia.
Note: There is no information on growth companies’ corporate bond issuances from Bangladesh, Cambodia, Mongolia and Sri Lanka, and the amounts are too small for Lao PDR, Pakistan and Philippines. Therefore, these jurisdictions are excluded from the figures.
Source: OECD Capital Market Series Dataset, LSEG, see Annex B for details.
The industry distribution of corporate bond issuances by Asian growth companies largely mirrored that of large companies over the 2000-22 period. The industrials sector alone accounted for more than half of the total issuances from growth companies, followed by cyclical consumers and utilities (Figure 2.8, Panel A). Across markets, there are also some differences. In almost all jurisdictions, the industrials sector dominates the issuance of growth-company bonds. The exceptions are Australia and Viet Nam, where non-cyclical consumer and cyclical consumer sectors, respectively, take the lead. Furthermore, growth companies from the cyclical consumer sector represent a significant share of issuance across Asian markets, accounting for 53% in Viet Nam and over a quarter in both Singapore and Malaysia. The utilities sector constitutes 30% of growth company proceeds in Hong Kong (China), and over 10% in Australia, Japan, India and Thailand (Figure 2.8, Panel B).
Note: In this figure, "Asia" refers to the jurisdictions that participated in the OECD Survey, including 18 Asian jurisdictions and Australia.
Note: The industry distribution is computed by calculating the cumulative amount issued by industry between 2000 and 2022 in each jurisdiction/region. There is no information on growth-company bond issuances from Bangladesh, Cambodia, Mongolia and Sri Lanka, and the amounts are too small for Lao PDR, Pakistan and Philippines. Therefore, these jurisdictions are excluded from the figure. The “Other” category includes energy, healthcare, technology and telecommunication services.
Source: OECD Capital Market Series Dataset, LSEG, see Annex B for details.
While there has been a global surge in non-investment grade corporate bonds, growth companies have not contributed much to this trend. Globally, the annual issuance of non-investment grade corporate bonds represented on average 18% of total issuance between 2000 and 2022. In Asia, this share was significantly lower with only 4% of total annual issuance corresponding to non-investment grade bonds. Non-investment grade corporate bond issued by growth companies only represented an average share in total proceeds of 0.1% globally and 0.4% in Asia (Figure 2.9).
Note: In this figure, "Asia" refers to the jurisdictions that participated in the OECD Survey, including 18 Asian jurisdictions and Australia. Data refers to the annual average share of non-investment grade bonds issued by non-financial growth companies in total issuance.
Source: OECD Capital Market Series Dataset, LSEG, see Annex B for details.