In Asia, there are so many structural features underpinning the market that I think movements in US interest rates are less of an issue for the region. As such it should be another healthy year after last yearÆs $50 billion in issuance.
In terms of the currency mix, around this time last year, there was a lot of noise about the prospective increase in euro issuance. In my eyes, euro issuance in Asia may grow somewhat, but I donÆt see it as something that you can hang your hat on as a sole business. Trades are done in dollars; people think in dollars, private bank flows are in dollars, the dollar remains the issuance currency of choice for Asia. The amount of clients in Asia who buy euros are, for the most part, confined largely to central banks.
I donÆt see a massive jump in euro issuance this year. However, that said, as a big euro house, as well as a big dollar house, we have the ability to accommodate that if necessary. We co-led KeximÆs 2006 record setting dual currency deal just this week as well as last month's hugely successful Philippine dollar and euro deal.
Yen will be interesting. We did a deal recently for the Export Bank of India in yen. There has been a lot of talk from India about yen issuance because of the withholding tax issue. Again though I donÆt see yen as a major growth area in the market in the near term, but it is a definite positive to be able to have that capability in your arsenal.
I think the yen space is a great factor for us to market to our clients as we can provide the full G3 execution capabilities to clients which not many other banks can do. It is this global presence with a great insight into local client needs that I feel is one of our core strengths. We also have the broadest distribution and it is this unmatched scale and efficiency along with a very impressive team that I feel are key competitive advantages for us in the Asian fixed income market.
So overall you expect the market share percentage between the three to remain relatively stable?
I think you'll see more issuance in the euro space. It's also possible that you could also see more issuance in yen because the Japanese markets are finally emerging from the doldrums and this will bring more interest in yen-denominated deals from central banks, which hasnÆt been there for some time. So I expect to see some growth there. I would expect both to grow a little bit from their current low level, but not enough to say it is the year of the yen or the year of the euro. The US dollar will still account for the bulk of issuance, which was at around 80% in 2005.
In terms of the Bangkok fixed income conference you held from January 24 to 26, was this one of your key themes, that dollar issuance will still dominate the market, but you have the capability to provide comprehensive G3 solutions?
The conferenceÆs main theme really was about showcasing borrowers who are looking to raise money in Asia; borrowers that were both Asian and international and allowing them to interact with both regional and global fixed income investors. Key panels included some sovereign and supranational borrowers and on one panel alone we had issuers who accounted for some US$200bn of issuance in 2005. This really was a key feature, bringing out some of the big European supra and agency names allowing them to interact face to face with the Asian investor base and hopefully sell more of their paper into the region.
Some panels included borrowers from Kazakhstan, a Russian bank panel, a steel panel and we also had an Asian high-yield and LBO module as well. Overall, the conference was predicated on people who wanted to borrow money in Asia. As a general rule, it was more about the names that Asian investors are going to be interested in rather than trying to target specific markets like Euros or Yen versus dollars.
The conference also had a lot of focus on the ABS market in Asia, which is especially relevant as the conference was held in Thailand, whose ABS market continues to mature. Just this week we closed a landmark deal for AEON which included the first subordinated debt offerings and I expect ThailandÆs ABS market to grow more in 2006 and the continued growth and development of Asian ABS is a key theme I feel for 2006.
In terms of international borrowers coming into Asia in order to raise capital, how do you see that trend unfolding over the short-term?
We sell substantially more European and US paper in the region than we sell of Asian paper, because thatÆs what Asia is, an exporter of capital and importer of product. In fact, our syndicate desk here spends more time distributing international syndicated deals than trying to place Asian deals. If I look at our syndicate sheet for today, we have plenty of deals that we are doing here that are not Asian-based. But we are also AsiaÆs leading G3 underwriter by league table volumes and the point I am making is that the Asian franchise is multi dimensional, banks that just focus on selling Asia into Asia are way behind the curve.
Asian investors are now willing to buy more esoteric deals. Not only are they buying the big supra names but theyÆre looking for a lot more diversity throughout the asset class and yield curve now. There have always been pockets in the market where that has happened but I think it is a much more sustainable trend these days. Investors are now looking to buy Perpetuals, Russian deals, Middle Eastern and Kazakhstan-based deals; they are buying more South American emerging market paper, and also much more general high yield. Asian investors are wider on what they are willing to buy and are less risk averse to some extent. That is a big difference.
Last year Citigroup finished behind both Standard Chartered and HSBC in local debt issuance. What will be your strategy going forward to ensure that you are more competitive this year?
We have more professionals dedicated to that sector than we do on our G3 desk. On the local market side û it is a much bigger business around $80 billion in 2005 compared with only $50 billion or so on the international issuance. It is a key business for us and our local and international teams are integrated in Asia, which means we can offer clients the full picture.
There is also the potential for growth in the domestic high-yield market in Asia. I think there is potential in Malaysia to build a strong high yield market, where it wouldnÆt have to be just high grade issuance all the time. I think investors are willing to look at a wider group of names and the same is true in countries like Taiwan and Korea, where there is a lot of domestic liquidity chasing after low yields with a real lack of bond diversity available. DonÆt forget these places have a bond mentality, they donÆt tend to buy equities all that much. I think these places need more choices in their respective domestic bond markets. So we would hope we can grow a more high-yield culture or structured or tier-1 businesses in these local markets. This is where we will be making a big push going forward.
Clearly high yield is the real money maker for underwriting. Any other sectors that stand out?
If all banks are doing is waiting for an RFP to walk in the door asking 20 banks to make a bid then making money is going to be tough. DonÆt get me wrong all banks need to have a mix of that business partly to ensure league table but I think there are ways to be more proactive in what we can show our clients. For example, we are doing bridges, leverage finance, acquisition finance as well as high yield transactions. There are more deals that are coming on the back of financial buyers getting involved in Asia. There are a lot of different things that Citigroup can do that differentiate us from the rest of the pack.
A lot of things are happening in Asia. This year we should see more infrastructure financing, acquisition financing, more leverage financing, more non-recourse financing. The great thing is we have the ability to bring these types of deals to market. In coming back to the Bangkok conference, what was exciting is that here is a forum where we brought together borrowers from a wide range of regions and sectors and loads of investors from the US, Europe and Asia and we have a series of dialogues both on the investor and borrower side. It really is now AsiaÆs premier fixed income event and itÆs the third year we ran it after previous meetings in Hong Kong and Singapore
What is the structure of the issuer coverage team for Citigroup in Asia?
Our Asia/Australia ex-Japan franchise numbers some 80 people dedicated to issuer and liability management coverage across bonds û both domestic and G3, loans and securitization as well as non-recourse and structured financings infrastructure and energy financing, asset and agency financing and leverage/acquisition financing. all housed on the same trading floor area. It is I feel the most powerful team in the region with specialists working together across these units to show one voice to clients.
How has the decision to stop publishing research affected your research capability?
Most of our clients have realized that, in truth, nothing much has changed. Investors have genuinely been very positive because in fact they do now get a better service and are treated more specifically. Any good client prefers personal service to getting a published document that thousands of clients will read. It is now a tailor made bespoke service we offer to our clients.
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