Following a 2.3% slide in the blue-chip Dow Jones index at the end of last week, the region saw TokyoÆs Nikkei fall 2.7% and the MSCI û a measure of share performance elsewhere in the region û drop 4%. The benchmark Hang Seng Index ended at 22,570.41.
Asian investment-grade names across the board widened by 10bp-15bp, with high-yield names losing 30bp-40bp. Philippine bonds lost 2bp-3bp while Philippine credit default swaps (CDS) widened by 50bp. KoreaÆs CDS increased to 35bp on Friday, up from 20bp at close of day Thursday.
The delay of DaimlerChryslerÆs $7.4 billion deal to spin-off Chrysler had already rattled investors. Bankers were forced to postpone a $12 billion syndicated loan to finance the transaction. Further, drug-retailer AllianceBoots postponed the syndication of $10.4 billion worth of senior debt for its leveraged buyout, while Oneida, a marketer of stainless steel silverware/flatware, cancelled its $120 million loan, according to Reuters LPC.
ôPeople are concerned about liquidity,ö says one syndicate banker. ô$100 billion of LBO financing is waiting to get done, and expectation of this supply is putting further pressure on the markets. Investors are becoming more selective, and also more demanding about price and covenants.ö
There was some good news last week, however. On Friday, the US Commerce Department released its estimate for US GDP growth for the second quarter. Reuters reports that the housing downturn proved less problematic for the economy in this period, with real residential fixed investment falling only 9.3%, versus 16.3% in the first quarter. Inflation data, however, is mixed. The personal consumption expenditure price index showed a 4.3% rise, but the core rate of inflation rose by only 1.4% in the second quarter, versus a 2.4% rise in the first quarter. The Fed, meanwhile, is expecting a range of 2.25% to 2.5% in average growth for the year.
For the moment though, markets are just too unpredictable for borrowers.
ôNo-one wants to take unnecessary risk. WeÆll wait for the storm to settle before pushing out the boat,ö says one syndicate banker.
Bonds currently on watch are PakistanÆs Azgard Nine, and Indonesia's PT Cikarang Listrindo and PT Mobile-8 Telecom Tbk. All are waiting for markets to stabilise before pricing their deals.