Following the Asian financial crisis, regional authorities recognised the importance of well-functioning capital markets and took steps to facilitate the use of market-based financing. Consequently, reforms were introduced in many jurisdictions to develop corporate bond markets as a source of financing for corporations and significant progress has been observed since then. Still, the level of development of corporate bond markets differs in the region and in most jurisdictions only large, high-quality issuers can issue bonds. In general, growth companies still face substantive barriers to access this type of financing.

This report formulates policy considerations to further develop corporate bond markets and to facilitate access by growth companies. This is informed by an overview of Asian corporate bond markets, including their functioning and challenges, and is based on information provided by 19 regulators via a survey, OECD databases and desktop research. Some of the key findings are listed below:

Corporate bond markets in Asia have grown significantly, however bank financing still dominates in the region. Corporate bond issuance has significantly increased in Asian markets, from representing 44% of the global issuance in 2000, to 85% in 2022. Corporate bond markets have also been offering increasing financing opportunities for growth companies. The issuance by growth companies increased from USD 5.7 billion in 2000 to USD 33.3 billion in 2022. Despite the rapid development of both public equity and corporate bond markets in Asia, corporations still rely heavily on bank financing, with market‑based financing taking a secondary role. In Asia, bank credit extended to non‑financial companies stands at 143% of GDP, much higher than the global number at 96%.

Corporate bond markets in Asia are at different stages of development. While some jurisdictions have developed their corporate bond markets for large and growth companies, some markets are at a very early stage of development where only large, highly‑rated companies have access to financing. Relatedly, very few jurisdictions have exemptions or programmes to facilitate growth companies’ access to corporate bond markets. Indeed, 13 jurisdictions have implemented at least one measure to increase overall access to corporate bond markets, but not specifically targeting growth companies.

A well-functioning government bond market is essential to develop other securities markets. A domestic liquid, risk-free yield curve allows the pricing of risky securities, including corporate bonds. Not all Asian jurisdictions have a well-developed government bond market, and even where the market exists, there are significant differences in the size, depth and liquidity of these markets. Corporate bonds can be listed and traded on the stock exchange in 16 jurisdictions, while an OTC market operates in 13 jurisdictions.

Many jurisdictions have improved their regulatory frameworks. A well-functioning corporate bond market requires a robust regulatory framework that ensures investor protection, maintains market integrity and mitigates systemic risks. Legal and regulatory provisions in most jurisdictions require registration or approval by regulators, with some jurisdictions mandating both. Common requirements include submitting a prospectus, historical financial statements and ongoing disclosure of information. Recurrent corporate bond issuers often benefit from streamlined processes. Regarding bondholder rights, trustee appointments are common, with 14 jurisdictions mandating this for corporate bond issues, while all require disclosure of material covenant-related information. Additionally, many jurisdictions have improved bankruptcy procedures to bolster creditor rights and facilitate corporate debt restructuring. However, only a few jurisdictions’ insolvency frameworks include components such as out-of-court restructuring frameworks, hybrid regimes and fast‑track procedures for SMEs. Applying necessary requirements for bonds issued to qualified investors, eliminating overly burdensome requirements and tailoring proportional requirements for growth companies should be a priority to further improve corporate bond markets in the region.

Asian corporate bond markets are characterised by low secondary market liquidity. A liquid market ensures an efficient price formation process, improves investor confidence and contributes to the overall functioning of capital markets. Corporate bond markets in Asia are characterised by low liquidity, which is identified as the most important barrier to developing these markets. Despite regulatory provisions in several jurisdictions, inactive market makers and lack of investors are among the key factors hindering liquidity.

There are challenges to credit rating assessments. Difficulties evaluating the creditworthiness of companies undermine investors’ ability to accurately evaluate risks and affect their willingness to invest. The existence of various credit rating opinions enriches the information available to investors. All jurisdictions in Asia have registered at least one credit rating agency. Alternative credit rating systems have only been adopted in three jurisdictions. Nevertheless, the assessment of the creditworthiness of companies was identified as a key barrier to support and develop corporate bond markets in Asia.

A lack of investors is a significant barrier to the development of corporate bond markets in Asia. The composition and diversity of the investor base play a pivotal role in shaping the dynamism and resilience of corporate bond markets. However, several jurisdictions identified the lack of investors, as well as investor’s lack of interest, as major barriers for the development of corporate bond markets. In Asia, institutional investors are relatively large, representing a significant share of the world’s total assets of pension funds and insurance companies. Therefore, they have substantial investment capacity to play a more significant role in Asian capital markets.

Tax treatment of corporate bonds is broadly similar in structure in Asia. In most jurisdictions companies are allowed to a tax deduction for the interest paid to corporate bonds investors and other expenses. From the investor’s perspective, it is common to pay tax on the interest received from holding corporate bonds while capital gains are taxed in only 14 jurisdictions. A withholding tax for foreign investors is generally applied unless there is a double taxation agreement, which is common in many jurisdictions. However, there are differences in the rates and conditions applied. Overall, the use of tax exemptions to help attract issuers and investors is not common in Asia.

Targeted policies or programmes to support growth companies’ access to bond markets are not common. Most measures implemented in the region aim to increase the overall access to corporate bond markets and are not targeted to growth companies. Only a few jurisdictions with more mature markets have implemented targeted policies to facilitate growth companies’ access to corporate bond markets and, in general, growth companies still face substantive barriers to access this type of financing. Only four jurisdictions waive certain requirements or procedures for growth companies.

Against this background, this report formulates policy considerations for authorities in Asia to further develop corporate bond markets and enhance growth companies’ access to these markets. The policy considerations outlined in this report are centred around three main objectives. First, they aim to ensure that regional markets first develop the pre‑requisites for well‑functioning corporate bond markets. Second, they aim to develop the corporate bond market for large firms first. And third, they target the facilitation of growth companies’ access to corporate bond markets. Ensuring the enabling factors are in place and that the bond market is working for large companies, could provide a robust foundation for credibility and trust in the market, and foster a culture that encourages the subsequent participation by growth companies.

The policy considerations are grouped into the following seven areas: pre-requisites for well-functioning corporate bond markets; appropriate regulatory and supervisory framework; adequate and independent credit risk assessment for companies all sizes; improved secondary market liquidity; diversified investor base; instruments to attract a large pool of investors and diversify risk; and role of government and other initiatives.