Deals to remember -- and a few to forget

From the depths of APP’s collapse in 2000 through to 2009 when issuance broke all records, we look at the highlights and lowlights of 10 years in Asia’s debt capital markets.


Still in the throes of the Asian financial crisis, 2000 was one of the worst years on record for G3 issuance in the region, with just $9.5 billion raised via 20 issuers, while $23 billion was printed in the local currency markets. A highlight of the year for all the wrong reasons was APP China's $403 million high-yield deal. Its 100 investors were soon to rue their decision, as was FinanceAsia for making it Deal of the Month. Later that autumn, the group was back with a $1.4 billion exchange offering that was to prove its death knell. 


For the first time since the Asian financial crisis, international debt issuance from Asia saw some colour restored to its cheeks with roughly $17.5 billion raised, almost half the $40 billion raised in the local currency markets. Corporates reconfigured their balance sheets spurred on by interest rate cuts from the US Federal Reserve, which was battling to lift the global economy after the dotcom crash. Banks made heavy use of subordinated debt to replenish capital ratios depleted by M&A activity.

Deals to remember included OCBC's $2.14 billion three-tranche deal to fund its bid for Keppel Capital; two sub-debt deals by DBS, which acquired Hong Kong's Dao Heng Bank; and a jumbo S$1.3 billion deal by UOB to fund its acquisition of OUB.

Deals to forget included PCCW's disastrous attempts to raise $3.5 billion that July just as the world was starting to concentrate on the possibility of an Argentinian default. J.P.Morgan pulled off a huge coup later in the year with a $750 million bond offering that finally re-financed the syndicated loan PCCW had taken out to buy Hong Kong Telecom. 

Chris Nicholas, who was head of Asian sales, trading and research at the newly merged Chase and J.P. Morgan recalled: "Getting such a large deal across the line was a real challenge as global markets were very volatile. But it was also a time when there were no established leaders in Asian debt markets. Borrowers were more willing to take a chance on a bank that came along with a good idea. We had one and it was a huge coup to do the deal others had failed with earlier in the year."


Massive fee compression dominated a year of flat G3 volumes with $18.5 billion raised compared to $53 billion in the domestic markets. Thailand's $1 billion sovereign deal set a new low of just 8bp on a net basis. 

Malaysia led the region raising $5.48 billion through two sovereign transactions; two issues for oil giant Petronas and a small sub-debt deal for Maybank. The Federation's $600 million deal of July that year represented the world's first Islamic global bond deal, while Petronas's $2.73 billion set a new record as the region's largest ever corporate bond deal.

Steve Roberts late of Salomon Smith Barney said: "This is a client I have very good memories of.  The then CEO, Tan Sri Hassan Marican, built Petronas into one of the world's foremost energy companies. He was always incredibly diligent and he never lost an air of humility that made everyone warm to him."


It was the survival of the cheapest in the fiercely competitive world of G3 debt capital markets. The Republic of Philippines paid just 6bp for a $1.05 billion 10-year deal in October. 

But the year was really dominated by just one company -- Hutchison Whampoa, which accounted for one third of the year's $32.9 billion issuance as it sought to mitigate re-financing risk and term out its debt ahead of potentially bad news about 3G take-up. Merrill Lynch was certainly well rewarded for Hutch's first deal, netting $30 million in fees for a $1.5 billion issue that safeguarded the company's market access after a difficult 2002. That deal was re-opened twice, followed by a €1 billion deal in July and a giant $5 billion three-tranche transaction at the end of the year.

Deals to forget included sovereign benchmarks from the Republic of Korea and People's Republic of China. Both were aggressively priced and both popped in the aftermarket. 


The year of $43 billion G3 issuance, of which 53% came from Asian sovereign or related entities from China, Korea, Indonesia, Thailand and the Philippines. But the two most significant deals were debut sovereign issues for Pakistan and, after one of the most hotly contested mandates in Asian DCM history, a $2.56 billion deal for the Hong Kong SAR. 

As Mark Bucknall, former co-head of global investment banking at HSBC said: "Hong Kong marked its territory in both US and Hong Kong dollars through a concurrent deal. The international tranche helped differentiate Hong Kong's credit from China, while the local portion was a great way to mop up excess local savings and further develop the domestic bond market."

The year also saw a more sustained pick-up in high-yield deals with transactions for Sun Sage, Excelcomindo, Panva Gas and Sino-Forest.

Domestic bond issuance was still running at double the G3 market, with $79 billion raised. 


The peak year for G3 issuance with $48.7 billion raised as borrowers rushed to market to try and stay ahead of expectations for higher rates and inflation on the back of surging oil prices.

The year was also marked by another sovereign debut, this time from Vietnam, which stepped on to the world stage with an upsized $750 million deal that had been almost 10 years in the making. "Its rarity value meant that it was able to price through comparables such as the Philippines and Indonesia," reflected Carsten Stoehr from lead manager Credit Suisse. "It amassed a huge order book."

The high yield market continued to race ahead, with the successful completion of the then lowest ever rated deal from Asia - a $250 million bond by B rated Thai pulp and paper company Advance Agro. It was joined by a legion of debut issuers including Universal Robina Corp, Adaro, Chaoda Modern Agriculture, Xinao Gas and Hanaro.

Deals to forget included a downsized $500 million high-yield debut by Korean chip manufacturer, Hynix. Offered at 97, it traded up to 111 by the end of the year. Critics wondered why the company hadn't tapped the domestic bond market where its turnaround story was already well known.

Domestic bond market issuance jumped to $91 billion via 947 issues.


The year of the bank capital transaction as Asian banks sought to improve their capital adequacy ratios ahead of the implementation of Basel II. Ironically, many of the transactions feted in 2006, will no longer be allowed under the Basel Committee's new proposals to toughen the rules following the most recent global financial crisis.

Highlights of the year in the bank capital space included debut transactions from India - UTI and ICICI -- following a relaxation of local rules, and a debut issue from Vietnam - a VND2.2 trillion lower tier-2 offering from Bank for Investment and Development of Vietnam (BIVD).

Overall, the G3 markets weren't able to top the 2005 record and a total of $44 billion was raised, compared to $93 billion in the local currency markets. The year saw another roster of debut issuers led by a $1 billion dual-tranche issue for Indonesia's state-owned electricity giant Persusahaan Listrik Negara (PLN) and a $250 million debut by Indonesian property company Lippo Karawachi.


A big year for the region's domestic bond markets, with issuance soaring past the $100 billion mark to close at $122 billion. G3 markets, on the other hand, struggled to live up to early expectations as spreads spiked on subprime fears and credit markets across the world began to freeze over. A total of $45 billion was raised, though the year will probably be best remembered for the deals which were cancelled, including a $1.5 billion issue for Chinese property developer Country Garden and a $400 million rival issue by Agile Property Holding, which both tried and failed to hit a very small window in November of that year.

One feature of 2007 was jumbo transactions, with the execution of 13 deals over $1 billion. Kicking off the year was a $2 billion offering for ICICI Bank, the biggest ever issue from India. Singapore's DBS and Korea's Woori also sold huge bank capital deals, at $2 billion and $1 billion respectively.

Sri Lanka also made its debut with a $500 million deal in the face of domestic opposition and the ongoing war with the Tamil Tigers.


The contrast between the ability of the region's domestic and international bond markets to withstand the credit crunch was starkly illustrated by the amounts raised in each. While the domestic bond markets absorbed a staggering $210 billion via 1,462 issuers - almost double the amount raised in 2007, the G3 markets shrank by nearly half with just $26 billion raised via 136 issuers.

Indeed, one of the mainstays of the G3 bond markets - Kexim - found it more cost effective to raise funds in a succession of domestic currencies and then swap the proceeds back to dollars. It launched Korea's inaugural Malaysian ringgit transaction in March, followed by issues in Hong Kong dollars, Singaporean dollars, Brazilian real and Mexican pesos.

China also showed the promise of the decade to come with the volume of renminbi transactions doubling. Indeed, a Rmb30 billion lower tier-2 transaction for China Merchants Bank became the first Chinese issue to win FinanceAsia's Best Local Currency Bond in our Annual Achievement Awards.

As Brad Levitt, Standard Chartered's former global head of capital markets puts it: "The Asian domestic debt markets have grown by a CAGR (compound annual growth rate) of about 25% for the last 10 years and yet there's still an enormous way to go. On just about any measure, the markets have enormous potential and are still nowhere near as liquid as their counterparts in the West."


An unlikely year for the G3 bond markets to re-discover their stride, particularly given the high spreads that needed to be paid at the beginning of the year. By the end of 2009, a total of $71 billion had been raised via G3 markets, although issuance couldn't keep pace with the huge uptick of transactions from domestic currency bond markets where $356 billion was raised.

Highlights of the year included Asia's first covered bond - a $1 billion issue for Kookmin Bank, debut sukuk issues from Indonesia and Singapore's Monetary Authority, Thailand's largest domestic bond issue for PTT Exploration and Production, and the Philippines' largest domestic bond issue for San Miguel.

Country Garden also finally made it to market with a $375 million deal in September, which re-opened the high-yield bond markets for Asian issuers after a period of 15 months.

¬ Haymarket Media Limited. All rights reserved.
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