The first quarter was a bonanza for Asia's bond markets as issuers took advantage of the cashed-up balance sheets that investors had accumulated during 2009. According to Dealogic figures, first-quarter 2010 volumes in the G3 currency markets came to just over $20 billion from 41 deals. FinanceAsia has covered 23 of these deals that priced in the US dollar market.
The 2009 volume for the same period was low in comparison, with $11.8 billion raised from 16 G3 currency deals across the Asia ex-Japan region.
However, a strict comparison isn't as simple as that. The congestion in the market during October 2009 forced a lot of issuers that were looking to come to market to hold off, so as to not overwhelm an investor base that was already swamped at the time.
Among the borrowers who did hold off was Indonesian oil and gas company, Chandra Asri, which then priced a $230 million high-yield deal in early February.
During the week of Chandra Asri's pricing, the European sovereign debt problems were a hot topic, causing global markets to deteriorate dramatically. Yields on European emerging market sovereigns fell by about 30bp in the first week of February and investment grade Asian corporate spreads widened by 11bp in one night just before the pricing. All this volatility in the bond markets, both in Asia and abroad, resulted in Asian stocks falling to five-month lows.
Yet, regardless of this backdrop, the first week of February was a landmark period for the quarter. Nine deals were priced within a five-day period, amounting to $4.7 billion of issuance volume.
The most significant deals to price during that first week of February were Bank of China (Hong Kong)'s $1.6 billion 10-year bond and Chandra Asri's $230 million five-year high-yield bond.
One banker on the BOCHK deal commented that the Asain transactions were helped along by doubts over the financial health of some peripheral European countries. "If a government is being put into question, the effects are going to trickle down the credit spectrum. In this context, corporate issuers and financial institutions offer a less risky option for investors."
"The Asian story is definitely seeing a decent deployment of cash, compared to other regions," said one source who worked on Shinhan Bank's $700 million deal that priced on March 9. Investors are willing to put money to work in Asia because of the outlook for economic growth and corporate profits. The general business environment is comparatively more stable than in Europe and the US, and as a result, there is generally more focus on Asia -- a trend that continued throughout the first quarter.
The first week of March ended with the US announcing the February non-farm payroll data, which showed unemployment rates had fallen to a five-month low of 9.7%. In addition, the concern surrounding the Greek sovereign subsided on the back of the EU's proposed bail-out plan.
Korean and Indian banks took advantage of the quieter backdrop, with the Export-Import Bank of Korea being the first to price in March. The Korean policy bank issued a benchmark $1 billion deal.
"Korean risk is not a scarce commodity and there is plenty of incoming supply from the policy banks and government-sponsored entities", said Brayan Lai, credit analyst with Credit Agricole CIB. "With the strong Korean won and too much foreign currency liquidity onshore, Korean regulators shall try to cap further Korean won upside to help its SME exporters."
Korean banks have historically relied actively on wholesale markets and global bond markets. But due to the upward pressure on the Korean won, Korean regulators want to see the reliance on overseas wholesale funding markets reduced.
Some analysts favour Korean banks as a direct result of this, as the regulators are pushing the banks to take less risk with their funding structures. What can be expected from Korea is less reliance on short-dated overseas funding and more reliance on deposits, equity and longer duration issues.
With the Easter break behind us, the region is again expected to see a steady flow of issues from high-yield and single-A investment-grade corporate issuers. In the immediate pipeline for April is another Korean financial institution, Hana Bank, which ended a roadshow on Wednesday, March 31. Also expected to price this quarter is Hyundai Capital, which went on a non-deal roadshow back in early March.
Asian banks that issued US dollar deals in the first quarter 2010: