Bond window could open this week

Fixed-income specialists say this week may provide a window of opportunity for Asian borrowers, but overall, primary issuance is likely to remain muted.
The window for Asian borrowers could open this week, according to some bankers, now that Citi, JPMorgan and Merrill Lynch have all released their earnings reports. There are three deals waiting to come to market: the Philippines $500 million managed by Credit Suisse and Deutsche Bank; Bank Mandiri's $250 million offering arranged by Barclays and Deutsche Bank; and Kia Motors' deal managed by Citi and KDB.

Following these deals, however, the market is likely to be quiet over the next few weeks ahead of the US Federal Open Market Committee meeting on January 31 and the Chinese New Year holiday in early February.

But as reports of a US recession become more ominous and the mood in the markets darkens, many borrowers who had planned a deal early this year will be reconsidering their options. "Borrowers are looking on in horror at the spreads and prices required to print a trade after the markets were hammered last week following the banks' earnings reports," says a source.

Indian financial institutions, including the State Bank of India and ICICI, are on the sidelines. ôItÆs tough convincing these issuers to come to market when they need to borrow at such spreads, but wonÆt be able to lend out at those levels,ö says a banker.

Korean policy banks, which are notoriously competitive in attempting to price bonds at the tightest possible levels, are also likely to retreat. However, some say the fact that Korea Development Bank (KDB) was pragmatic enough to issue at current levels last week will open the way for others such as Hana Bank, Woori Bank or Shinhan to issue without losing face. Nonetheless, other issuers such as Kexim will no doubt find it hard to follow the precedent set by KDB.

High-yield borrowers, initially tipped to follow IndonesiaÆs $2 billion sub-investment grade deal the previous week, are also unlikely to stick out their necks. ôTraditionally it has taken a large investment-grade borrower or sovereign to price in order for high-yield borrowers to follow. This time, issuers will seize a window if and when they can, regardless of what came before,ö says a source.

ôFew high-yield bond deals can get done publicly at this stage unless they are a very rare name and benefit from a strong domestic bid, but whether those issuers will accept these new levels is another question,ö he continued.

The companies that do issue, therefore, are likely to be those that have urgent refinancing needs, or those that are so far into the approvals process for bringing a deal to market that it would be problematic to abandon the trade. The others will turn to their domestic bond markets and local banks for funding.

Meanwhile, sophisticated borrowers will attempt to exhaust other currencies such as Australian dollars and Japanese yen before dipping their toes into the dollar market again. Hyundai Capital Services last week priced a Ñ47 billion ($440 million) deal managed by Daiwa Securities, JPMorgan and UBS, and Kookmin Bank is expected to follow suit soon.

However, these markets have limited capacity so at some point borrowers will have to accept the harsh reality of the new pricing levels and return to the dollar market in order to access sizeable funds.
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