Power projects to drive growth of Asia's bond market

Issuances in RE and LNG infrastructure are expected to increase.

The Asia Pacific offshore project bond market is expected to continue its strong growth over the next few years, to be anchored by power projects and Australian availability-based private-public partnerships, Moody’s Investors Service said in a note.

"Issuances in renewable energy, climate resilient and LNG infrastructure will also increase," said Ray Tay, a Moody's senior vice president.

"A rise in both geographic and sector diversity of issuers, coupled with efforts by regional multilateral development banks and policy makers to catalyze capital market funding, will help spur growth in the project bond sector," he added.

Whilst Australian projects dominated rated project bonds in APAC in 2016, this pool now also includes projects from Indonesia, India and Vietnam.

"Recent project bond issues in APAC have been oversubscribed, with strong interest from Asian institutional investors. This indicates that institutional investors are attracted to infrastructure and project bond issuance, even those with long-term amortizing debt features, as these bonds allow investors to diversify portfolios and facilitate duration matching," sayid Tay.

Although recent issuance in APAC has been for refinancing purposes, project bonds can also be issued to fund greenfield infrastructure. For example, some Australian project bonds were exposed to construction risks when initially rated.

Favorable investor appetite and banks' focus on Basel III considerations are also likely to lead to more project bond issuance, Tay added.