Citigroup gives its views on the fixed-income markets

The bank's regional head of fixed-income, currencies and commodities talks about investment strategies.
As Citigroup's annual Asian fixed-income conference gets under way in Hong Kong, we chat with Jeremy Amias, the bank's regional head of fixed-income, currencies and commodities (FICC) to discuss what will be the focus of this week's conference and what are some of the priorities for the bank in the next 12 months in the FICC space.

FinanceAsia: You have roughly 640 investors and issuers in town this week for your fourth Asia Pacific fixed-income investor conference (FIIC), with many global issuers from outside the region. Tell me about the conference.

Jeremy Amias: The conference is an opportunity to put some of the worldÆs largest borrowers with some of the worldÆs most important investors. The majority of the investors are from Asia but the majority of the issuers are non-Asian. ThatÆs in part because Asian investors spend more money on non-Asian bonds. ItÆs a very efficient way for these global borrowers to come and meet with the Asian investor base.

At the end of the day we are trying to get as many issuers in front of as many borrowers as possible. But we have found investors are more interested in hearing about market themes than being told about somebodyÆs credit. So, for example, we structure panels and sessions on whatÆs going on in the Asian market and bring out some of CitigroupÆs global product specialists to discuss some markets which may be of interest to the Asian investor base. This year these include panels on covered bonds, fund-linked products and inflation-linked bonds. And weÆll have, of course, hundreds of one-on-one meetings.

So what will you be telling these Asian investors about the opportunities for investing outside the region?

With a flat yield curve, the Asian investor base needs to be more proactive and has to start thinking about investing in new products to pick up yield. This is the bread and butter of the conference - present the full gamut of investment options for the Asian investor base.

WeÆre bringing in new types of borrowers and product specialists for the investor base in Asia to focus on and learn more about. These include inflation-linked products and multi-asset derivatives, securitized products, and residential mortgage-backed securities. There will be panels on these throughout the week and we have borrowers from across the globe. We have borrowers from Brazil, from Kazakhstan, from Vietnam for example alongside the global supranational issuance heavyweights.

Hopefully everyone can take something away from the conference but what is clear is that every year there is more interest in it. Asia is now home to some of the biggest pools of capital in the world and the global issuer base is keen to tap this liquidity.

You announced a few months ago the creation of a new FICC business that will be combining sales and trading and fixed-income. You will be running this in Asia. What does this mean for the bank in Asia?

There used to be two businesses. One was global fixed-income. The other was emerging markets, sales and trading. But the soft currency and the hard currencies or G3 were increasingly moving closer together in Asia -- clients want the full picture and for some time these businesses have been in reality integrated in Asia. We have already been leveraging the benefits of an integrated platform across businesses and countries for Asia - it is not such a major move for Asia at least.

The move reflects the ongoing integration of our "developed world" fixed-income businesses and those in the emerging markets as part of our continued momentum to position our FICC business for growth over the long term.

The important message is that you can no longer separate the global bond business from say the local bond business of say a Hong Kong or a Malaysia for example. A global investor wants investment ideas for offshore paper from Asia or local currency paper ideas.

A global borrower wants issuance ideas to hit the Asian dollar bid or to tap the Asian local currency bid. These businesses are very complimentary. What we are saying in reality is that you can no longer really separate domestic from international.

What are some of the priorities in the year ahead in the FICC space in terms of developing the business?

Asia FICC is a significant contributor to our Asian corporate and investment banking revenues and Asian CIB revenues were over US$4bn in 2006. Asian FICC also contributes about 15% to global FICC numbers. It is big business for Citigroup in Asia but what is exciting is that there are still areas where we can develop and grow and we can also add further to some of our strongest businesses.

Some of the key priorities in 2007 are fixed-income prime brokerage, to serve the increasing number of hedge fund clients. Commodities is an area where we are investing heavily along with structured credit and CDO businesses. Asian investors and issuers are increasingly becoming more sophisticated and the focus is to offer them innovative solutions to meet their evolving needs.

One of CitigroupÆs strongest businesses in Asia now is the leveraged finance and high-yield business. You saw some interesting transactions in 2006 such as the KKR acquisition of Flextronics in India and KKRÆs acquisition of BIS Cleanaway in Australia and Carlyle GroupÆs acquisition of EMC in Taiwan. These were all $500million to $1billion equivalent deals but such is the growth and influx of funds that deal sizes will only increase.

The Asian LBO market is developing fast and is helping to increase the sophistication of AsiaÆs capital markets. Private equity financing requirements have helped transform AsiaÆs capital markets, from LBOs in India and Taiwan to high yield bond issuance in Korea for the likes of C&M for example. Some of these types of issues would not have been possible a few years back.

Deal sizes are increasing too û you are now seeing multi billion dollars deals with recent examples in Australia. I expect you will see more of these types of transactions in the coming year.

What are the other developing businesses for Citigroup in Asia on the FICC side?

The Islamic fixed-income in Asia is one area where we are going to be more active. We have full Islamic businesses in the Middle East but itÆs a growing business in Asia too with a growing share of local bond market issuance in Indonesia and Malaysia structured as Islamic offerings.

Local corporate bond market trading is also starting to develop and we now have teams across the region trading across the local credit curve but we will be adding to these teams across the region.

On the commodities side, we are keen to move into coal, carbon credits and palm oil and rubber trading in Asia. Inflation trading too is starting to take off in Asia and this is another area of growth and development.
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