Executive summary

The COVID-19 pandemic has led to significant challenges for the global economy and financial stability. The measures taken by governments to address the health crisis notably disrupted supply chains and changed ways of doing business in many respects. In Asia, thanks to the measures taken by governments, the region’s corporate sector started recovering more rapidly from the crisis than in other regions. However, recent lockdowns in parts of the region may increase economic uncertainty for corporations.

Capital markets played an important role in this recovery by providing financing to otherwise viable businesses struggling during the pandemic, and by supporting research and innovation that helped tackle the health crisis. Well-functioning capital markets will continue to play an important part in the recovery, but will require corporate governance frameworks that give investors, executives, corporate directors and stakeholders the tools and incentives needed to perform their roles in a post-COVID-19 environment.

This is particularly important for Asia as Asian listed companies represent over half of the total number of companies listed around the world and one-third of global market capitalisation. Asian markets also host some of the world’s largest companies. At the end of 2020, more than half of the world’s largest 10 000 listed companies had their headquarters in Asia. Over the last decade, Asian corporations’ investment represented over one-third of global corporate investment and this share is set to increase further.

Asian company profitability is relatively weak compared to the rest of the world, and corporate investment mainly focuses on fixed capital rather than research and development.

The surge in Asian companies’ corporate investment and revenues has not been matched by growth in profitability. In 2005, Asian non-financial companies needed USD 1.1 of capital to generate USD 1 of revenue; it now takes almost USD 1.6 to generate that same dollar. This, together with a decrease in profit margins, has negatively impacted firms’ profitability. Overcapacity in a number of industries and an increase in non-viable firms (“zombie firms”) partly explain these developments.

Asian non-financial companies now invest more in fixed capital than companies in any other region. However, the same is not true for investment in research and development (R&D). Asia notably lags behind the rest of the world in terms of R&D investment in industries such as healthcare and technology.

Although listed firms’ leverage has not increased significantly, outstanding debt has surged, mainly driven by firms with lower debt servicing capacity. In emerging and developing Asian markets, firms with lower debt servicing capacity owed almost USD 3 trillion in debt at the end of 2020. Importantly, bank lending remains the dominant type of financing used by the non-financial corporate sector in most Asian economies. This increases both the fragility of the corporate sector and its exposure to shocks. The use of corporate bonds and other debt securities is generally not widespread in Asia and has not grown markedly relative to bank financing.

Asian companies are the largest users of public equity markets.

Asian companies account for 46% of all public equity raised globally since 2009, a marked increase from 22% during the 1990s. This growth is mainly the result of a surge in the number of initial public offerings (IPOs) by Chinese companies, which over the last 10 years was six times higher than during the 1990s. Hong Kong (China), India, Japan and Korea also rank among the top ten IPO markets globally. Importantly, several Asian emerging markets such as Indonesia, Malaysia and Thailand also rank higher in terms of IPOs than most advanced economies. In terms of industries, financial, technology and industrial companies accounted for 54% of the capital raised via IPOs in Asia between 2012 and 2021.

Asian companies have made extensive use of public equity markets in times of crisis. In 2009 alone, already-listed non-financial Asian companies raised USD 141 billion of public equity at a time when bank financing contracted significantly. This pattern repeated itself during the COVID-19 crisis, when listed non-financial companies raised a total of USD 262 billion in 2020 and USD 301 billion in 2021 via secondary public offerings.

Asian equity markets have also played an important role in providing capital to growth companies. All advanced Asian markets have seen an increase in the share of growth company listings in all listings in 2009-21 compared to the 1990s. In these markets, 9 out of 10 IPOs in the past decade were conducted by growth companies. Asia hosted more than 60% of the world’s growth company IPOs in the past five years, of which the People’s Republic of China (hereafter ‘China’) and India together represented half.

Asian corporate bond markets have grown significantly during the past two decades.

Aggregate non-financial corporate bond issuance more than quadrupled from an annual average of USD 129 billion between 2000 and 2008 to USD 602 billion between 2009 and 2021, reaching USD 965 billion in 2021. As a result, the total outstanding amount of non-financial corporate bonds issued by Asian companies reached USD 3.8 trillion in 2021, one-fourth of the global amount. The Chinese market has been the main driver of this growth, increasing from less than 1% of the region’s total issuance to roughly two-thirds in 2021.

As Asian bond markets have grown, credit quality has decreased from high levels in the early 2000s. The average rating of Asian issues decreased more than two notches between 2000 and 2021. This trend has not been driven by a marked increase in non-investment grade issuance, as it has remained small at 6.0% in 2021 compared to 22.5% globally. Rather, the reduction in average ratings has been driven primarily by a change in the composition of the investment grade category from higher ratings towards lower investment grade ratings. At the end of 2020, bonds in the BBB category – the lowest investment grade category – represented the largest share of investment grade issuance in Asia with 50% of issuances, similar to the global share. It is worth noting than in 2021, the share of BBB rated bonds in Asia dropped to 37%, making A grades the largest category at 46%, while BBB grades grew to 58% globally.

In contrast with global trends, the most important categories of investors in public equity markets in Asia are corporations, the public sector and strategic individuals.

Asian companies significantly influence today’s global corporate ownership landscape. More than half of the total number of listed companies globally are listed in Asia, with 30% in advanced Asian markets and 24% in emerging and developing Asian markets. Ownership structures in Asia differ from structures in the rest of the world. Institutional investors, who own 43% of market capitalisation globally, making them the most important category of investors, own only 18% of the listed equity in Asia. In Asia, corporations, the public sector and strategic individuals are the most important investors in equity markets, owning respectively 20%, 17% and 14% of the listed equity. Importantly, ownership concentration in Asian listed companies is higher compared to global levels. In almost half of the listed companies in Asia and in 60% of the listed companies in emerging and developing Asia, the three largest shareholders own over 50% of the equity.

Capital markets continued financing companies during the COVID-19 crisis.

At the start of the COVID-19 crisis, public equity markets in Asia came to a halt as in the rest of the world. However, following the second quarter of 2020, Asian companies were able to make extensive use of capital markets, although with substantial differences between industries and markets. The decline in the first quarter was most pronounced in advanced Asia, while emerging and developing Asia was less affected. During the third quarter, non-financial companies in Asia raised USD 136 billion, of which China represented almost 70%. In terms of industries, the basic materials, utilities, energy and consumer cyclicals industries saw the largest contractions in fundraising through public equity markets during the first quarter of 2020, while healthcare, consumer non-cyclicals and telecommunications services industries were able to raise more funds compared to historical levels. In 2021, capital raised in Asia reached record amounts, averaging USD 113 billion in each quarter.

In March 2020, many companies resorted to corporate bond markets to alleviate liquidity challenges or to build cushions for future economic uncertainty. In April 2020, Asian corporate bond issuances peaked at USD 105 billion, of which almost 74% was issued by companies from China, while only 6% was issued by companies from other jurisdictions in emerging and developing Asia. In 2020, corporate bonds issued by Chinese, Japanese and Korean non-financial companies together accounted for nearly 90% of all Asian issuances, significantly higher than in previous years. In 2021, in contrast with the decreasing global trend, Asian non-financial companies increased their use of corporate bonds. Issuances by non-investment grade companies, which faced difficulties in accessing bond markets in 2020, reverted to historical levels in 2021.

In response to the COVID-19 crisis, Asian economies adopted a range of measures, spanning from regulatory adjustments to both direct and indirect financial support.

The COVID-19 crisis has put many companies, and indeed entire industries, under severe pressure. To help companies navigate the crisis, all economies adopted a range of measures which have underpinned the recovery. While some of these measures were temporary in nature and introduced for the purpose of mitigating the immediate impact of the crisis, other measures may have a long-term impact on how companies are governed, on their capital and ownership structures, and on how they manage their relationships with shareholders and stakeholders.

The most frequently used direct support measures were loans and loan guarantees. Asian governments also made widespread use of subsidies, grants and capital injections. Many also implemented targeted industry measures, including for the aviation and tourism sectors, and some set up special business funds. Certain governments also used relief packages to promote environmental and digitalisation objectives. The majority of indirect measures aimed to alleviate corporate liquidity needs, including by providing payment deferrals for tax obligations or simply lowering tax ratios, such as corporate income tax. Many economies also waived, lowered or deferred social security contributions, and a large number provided wage and utility subsidies. Regulatory adjustments included, among others, changes to rules for annual general meetings and financial disclosure, measures to facilitate access to capital markets and the tightening of FDI screening mechanisms.

The COVID-19 crisis has highlighted weaknesses in the corporate sector globally, which call for improvements in corporate governance and capital market policies. Against this background, OECD and G20 members are reviewing the G20/OECD Principles of Corporate Governance, taking into account the lessons learnt from the crisis with regard to corporate governance and capital markets. The findings in this report also inform the review process.


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