Corporate Financing Analysis - Formosa Bonds Appealing To A Growing Pool Of Investors - 11 SEPT 2017


With yield-hungry investors on the hunt for new investment opportunities, Taiwan's offshore bond market - and its deepening pool of liquidity - is attracting a growing amount of attention. Led by interest from issuers in the private sector, issuance of Taiwanese foreign-denominated international bonds - or Formosa bonds as they are more commonly known - is currently on course to tally a record high in 2017, according to Bloomberg data correct to August 21. With debt capital market (dcm) investors looking for something more appealing in Taiwan's local currency bond market, we have seen an increase in the sale of Formosa bonds by both governments and corporates in the y-t-d period. So far this year, state-backed deals have tallied USD1,465.0mn, an increase from USD925.0mn in such deals announced across the 2016 full-year period and a tally which puts the market on track for a record year of issuance.

In the market for corporate issuance, meanwhile, Formosa bond activity has reached a level of USD32,300mn which, with around a third of the year left to run, is already the third largest announced haul of deals on record. And if activity in the Formosa market continues at its current rate, then it will almost certainly reach a new record high in 2017, or at very least remain on par with the bumper haul of deals (worth USD48,359.3mn) completed last year ( see ' Taiwanese Formosa Bond Market Growing In Maturity ' , March 25 2015). We point to the favourable macroeconomic backdrop as certainly being supportive of this trend over the coming quarters. Indeed, Taiwan's economy grew by 2.1% y-o-y in Q217, bringing H117 growth to 2.4% y-o-y. On a q-o-q seasonally adjusted (SA) basis, the economy grew by 0.2%, marking a slowdown from the 0.9% rate recorded in the previous quarter, largely due to a decline in gross fixed capital formation. In light of the economy's better than expected performance so far, BMI's Taiwan analyst recently upgraded our 2017 real GDP growth forecast to 2.2% from 2.0% previously (with real GDP having expanded by 1.5% in 2016).

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A Maturing Market
Corporate Formosa Bond Issuance, USDmn
Source: Bloomberg, BMI

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