Asian debt markets kicked off the new year with a flurry of activity on Wednesday as both the Republic of the Philippines and Export-Import Bank of Korea (Kexim) tapped the markets with benchmark bonds.
The Philippines launched a new 25-year global and Kexim entered the market with a dual-tranche five-year and 10.25-year bond. The decision to go head-to-head with each other reflects the uncertain funding outlook. “Who knows how long the markets will stay positive,” said one debt syndicate banker. “I don’t think they’ll cannibalise each other and both the Philippines and Kexim are borrowers that can open the market.”
The Philippines hired Deutsche Bank and Standard Chartered as global coordinators and bookrunners, with Citi, Credit Suisse, Goldman Sachs, HSBC, J.P. Morgan and UBS also as joint bookrunners. Kexim mandated BNP, Bank of America Merrill Lynch, Citi, Deutsche Bank, HSBC and Royal Bank of Scotland as joint bookrunners.
The weeks leading up to the Lunar New Year, which falls at the end of January this year, are expected to be busy as issuers seize whatever opportunity they can to launch deals.
Away from the Philippines and Kexim, Nan Fung International has appointed HSBC, Goldman Sachs and J.P. Morgan to arrange a series of fixed-income investor meetings in Asia and Europe. A debut US dollar bond may follow after the completion of investor meetings, subject to market conditions.
Nan Fung, which is a Hong Kong-based developer with property projects in Hong Kong and China, is rated Baa3 stable by Moody’s and BBB stable by Fitch. It is a minority shareholder in Sino Ocean Land Holdings.
The Republic of Indonesia is also waiting in the wings. Having completed a roadshow last year it is expected to issue a sovereign bond in January. HSBC, J.P. Morgan and Standard Chartered are joint bookrunners.
Looking ahead, credit analysts say the European sovereign debt crisis will continue to dominate headlines and constrain issuance from Asian borrowers, despite the fact that most have strong balance sheets.
“Moving into 2012, I think conditions will still remain tricky,” said Guy Stear, a credit strategist at Societe Generale. “Asian credit fundamentals remain strong but Asian issuers are being held hostage to the situation in Europe.”
“I see Europe affecting Asia in two ways,” he added. “First, it could affect trade flows. We could see less exports from China, as was the case in 2008. Second, it could impact the investors for Asian dollar bonds. If yields in Europe stay high, this could overcrowd the market and, if US investors stay risk averse, they are likely to stick to names that they are familiar with.”
However, recent trends suggest that US investors are showing greater interest in emerging markets and Asia in particular, which bodes well for the region’s borrowers. Debt specialists note that more real money funds are opening offices in Asia and delegating decision-making to the local level.
“I’m still bullish on Asian credit and I’m expecting a fairly busy first quarter,” said John Wade, head of Asia-Pacific debt capital markets at Royal Bank of Scotland. “We’ve seen both Mexico and Brazil issue well-received dollar bonds this week, which indicates that there is demand for non-European emerging-market names.”
Many US investors are refocusing on Asia, according to Wade, though some markets are still a challenge. “The wider spreads remain a concern and we do see a standstill with some of the Indian banks due to the wide spreads,” he said. “It’s more a use-of-proceeds issue — ie, it’s tough to pass along the higher spreads.”
The withdrawal of some foreign lenders from the region should also help to support bond issuance. European banks in particular are pulling back on their loan activity, leaving Asian companies that want to raise debt with fewer options.
“We should see more corporate bond activity,” said one debt specialist. “There could be less issuance from financial institutions as investors want to reduce their exposure to the banks, and I think it will take a bit more time for the high-yield market to come back. Last year, we saw about $20 billion worth of high-yield issuance and I think we’ll be lucky if we have $10 billion this year.”
According to Dealogic, Asian G3 bonds issuance chalked up $83.6 billion in 2011, down 5% from the record $88.1 billion raised in 2010. South Korea and China led G3 bond issuance. In contrast, the total Asia (ex-Japan) volume for local currency, offshore renminbi and G3 bonds reached a record $543.6 billion in 2011, exceeding the previous year’s $465.1 billion.