Citi has created a new role running Asia-Pacific local currency bond syndicate in recognition of the growing importance of the region's domestic bond markets to its franchise.
James Arnold, currently the bank's head of Australian dollar syndicate, will take on additional responsibilities for other regional currencies, according to an internal memo seen by FinanceAsia.
He will report to Duncan Phillips, head of Asia-Pacific debt syndicate based in Hong Kong, and John McLean, head of capital markets origination for Australia and New Zealand.
Philips told FinanceAsia the move made sense for a number of reasons. "Asian local currency issuance is continuing to grow strongly and this trend could become more marked in 2016 given the recent strengthening of the US dollar," he said.
From an internal perspective, Phillips said Citi wanted to streamline its operations so the bank has one port of call for Asian currencies within its global syndicate team. He also added that, since Arnold travels frequently across Asia marketing the Australian dollar, the new role would enable him to talk to borrowers across the whole gamut of Asian currencies.
Alongside Arnold and Phillips, Citi has three other syndicate bankers who work on G3 currencies and each have a specific Asian currency beat as well. Andy Siow is responsible for Singapore dollar execution, while Eeswary Krishnan covers China and Rishi Jalan India.
According to Dealogic, Citi underwrote $1.9 billion via 14 Asian currency denominated transactions in 2015 ex-Japan and ex-Australia. This gave the bank a 0.4% market share and put it in 47th place in the regional league tables.
The league tables are now completely dominated by Chinese banks and securities houses led by ICBC, which took the number 1 spot underwriting $27.6 billion, and Citic Securities in second place on $26.1 billion.
The growing ascendancy of Chinese financial institutions underlines just how far the market has changed since the turn of the century, when only $23 billion was raised from Asian currency bond issuance ex-Japan, ex-Australia.
In 2000, Chinese issuers accounted for just $3.5 billion of the total. In 2015, Chinese corporate issuers accounted for $425.9 billion of Asia's overall $506.7 billion, according to Dealogic.
This is now more than six times the amount raised in G3 currencies. Taken together, Asian corporates, FIG and bank issuers raised $873 billion in local currencies during 2015 compared to $142 billion in G3 currencies.
However, with the exception of China and Indonesia, all Asian domestic bond markets registered declining issuance in 2015 compared to 2014's $521 billion. Corporate borrowing in the Philippines, for example, fell from $4.7 billion to $2.86 billion and Singapore from $9.03 billion to $5.97 billion.
Chinese corporate issuance, on the other hand, continued to grow, with issuance rising from $420.5 billion in 2014. Citi's Phillips believes growth might accelerate in 2016.
"Issuers have been indicating they're less likely to raise money offshore in 2016 because of FX movements and cost considerations," he said. "US interest rates are rising but the People's Bank of China has been cutting rates making it far cheaper to raise money onshore."
Phillips is also enthusiastic about the prospects for both the panda and masala bond markets. The former entails foreign entities raising debt in China's onshore bond market, while the latter is an offshore rupee-denominated market - India's answer to China's dim sum bonds.
Masala spices up DCM
So far the only masala bonds have come from supranational issuers such as the International Finance Corp (IFC) and European Bank for Reconstruction and Development (EBRD). But a slew of corporate issuers are expected in 2016, with Indian Prime Minister Narendra Modi suggesting up to £1 billion ($1.46 billion) of issuance during his trip to London in November.
This compares to the $8.2 billion Indian corporates raised in the domestic market in 2015, according to Dealogic. Again, the amount was down on 2014, when they raised $10.87 billion.
"The Reserve Bank of India has published a framework for issuance and we expect the market to gather pace this year," Phillips said. "There’s plenty of interest from Indian borrowers and a nascent investor base for masala debt. But there will be a discovery process for both sides as the first few transactions get off the ground."
The first prospective domestic Indian borrower may still be Housing Development Finance Corp (HDFC), which initiated marketing for a deal late last year but eventually decided to await better market conditions. Citi is one of the lead managers for what is purported to be a $300 million equivalent five-year offering alongside Barclays, Credit Suisse, HSBC and JP Morgan.
Most masala bonds are likely to be listed on the London Stock Exchange. During his visit Modi joked that having created James Bond and Brooke Bond, the UK could now add rupee bonds to the list.
Other domestic issuers said to be considering masala debt include Bharti Airtel, Yes Bank, JSW Group, GMR Infrastructure and energy conglomerate NTPC.
Yet while borrowers may be keen to issue, there are questions surrounding investors' enthusiasm over the short-term at least. The rupee has been less affected than many other emerging market currencies but it is still on a declining trend relative to the US dollar.
One year ago, the cross rate stood at Rs62.13 to the dollar. At Monday's close it was at Rs66.8, a 7% decline over a 12-month period.
