Bond pipeline

Banks prepare debt deals for 2012

Indonesia is targeting a dollar bond launch in January, while Mongolian banks plan issuance. Reliance Industries and Korea Telecom may tap sooner.

After a frenetic first half and a quiet third quarter in Asia’s debt markets, most bankers are now looking forward to Christmas and preparing for 2012.

January is typically a busy month and banks are already lining up deals. Among those that are expected to kick off issuance next year is the Republic of Indonesia, which has picked HSBC, J.P. Morgan and Standard Chartered for a bond to raise at least $1 billion.

According to a person familiar with the deal, Indonesia is eyeing a dual-tranche 10-year and 30-year combination. There has long been talk of Indonesia issuing a 30-year bond, but the sovereign was said to be reluctant to lock in funding for 30 years as it is expecting a ratings upgrade. However, with 30-year US Treasury yields hovering near all-time lows, bankers say Indonesia can achieve compelling pricing for 30-year funding.

RFPs were sent out a few weeks ago and a number of banks including Barclays Capital, Bank of America Merrill Lynch, Credit Suisse and Goldman Sachs pitched for the deal. Indonesia handed out the mandate about a week before it sold a $1 billion sukuk through Citi, HSBC and Standard Chartered last week. The sovereign also sold a $2.5 billion 10-year bond in April with Deutsche Bank, J.P. Morgan and UBS as the arrangers, and chose to retain J.P. Morgan for its upcoming deal.

In Mongolia, a number of banks –including Golomt Bank, Xac Bank and Development Bank of Mongolia — are planning to tap the dollar bond market. However, with the high-yield markets still shut and the worries over European sovereign debt dominating headlines, these banks are expected to wait for next year.

Mongolia’s largest privately owned bank Golomt Bank has mandated Deutsche Bank, Morgan Stanley and UBS as arrangers for its potential dollar bond. The bank is rated BB- by Standard & Poor’s and Ba3 by Moody’s. Golomt Bank was established in 1995 as a wholly owned subsidiary of Bodi International.

Elsewhere, Xac Bank, a microfinance institution and community development bank in Ulan Bator held investor meetings in September for a potential dollar bond. The bank was eyeing a launch this year but market conditions grew progressively worse after they wrapped up meetings. ING and UBS were the arrangers and helped set up the bank’s $300 million medium-term note programme. “Yes, they are looking to access the dollar markets but I think Europe needs to fix its problems first,” said one person familiar with the deal.

Elsewhere, Development Bank of Mongolia, which is wholly owned by the Mongolian government, sent out an RFP a few months ago and is rumoured to have mandated banks for the deal. A number of Mongolian companies are also eyeing the market, including Mongolian Mining Corp, which mandated Standard Chartered for investor meetings some time back.

However, observers note that nothing is likely to emerge from Mongolia in a hurry. Early this year, bankers had pitched for a Mongolian sovereign bond, but nothing came of it. The only borrower to have issued is the Trade and Development Bank of Mongolia, which has tapped the market three times.

Furthermore, after a record-breaking first half, the Asian high-yield market is shut and secondary trading is very light. Unless the market picks up, it is going to be tough to get a Mongolia credit out of the door. “The high-yield market has been pretty quiet. We see industrial names trading in the 70s/80s levels and the Chinese property companies at 80s/90s levels,” said one debt banker.

In the meantime, bankers have not completely given up on markets, although market conditions are tricky and the windows of opportunity to execute deals are brief.

Reliance Industries has been rumoured to be planning a triple tranche-deal for the past few weeks. Bank of America Merrill Lynch, Citi, HSBC and UBS are said to be arranging the deal. Elsewhere, Kingfisher Airlines is said to be in the market with a bridge loan that could then be refinanced through a bond offering. Citi and Standard Chartered are rumoured to be among the banks that have been picked to arrange the loan.

A more imminent deal is Korea Telecom’s planned Swiss franc bond through Credit Suisse and UBS. Korean borrowers have been tapping the Swiss franc market as it allows them to raise funds cheaply and swap to dollars. Korea Land & Housing last week sold a Sfr150 million five-year bond that paid a coupon of 2.125%. Deutsche Bank arranged the deal.

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