Torrid market conditions have left the Asian debt markets deathly quiet. There has not been any Asian dollar bond issuance since Ballarpur Industries priced a $200 million perpetual on August 4.
The iTraxx Asia Investment Grade Index has widened sharply since then, hitting 161bp last Friday, but had tightened back to 137bp/139bp by yesterday morning. ”We are seeing some stability in the market and there could be a window to print a deal but, quite frankly, a borrower would have to compensate investors for the risk,” said one debt syndicate banker yesterday. “In the US, we’ve seen blue-chip borrowers pay new-issue premiums of 30bp to clear a trade. But it is untested in Asia.”
There is an advantage to issuing now. US Treasuries are at lows — as investors have piled into them amid a scramble to safety — so issuers can lock in long-term funding at relatively low levels. On the flip side, any borrower attempting to issue now would have to fork out a high new-issue premium and also run the risk of having its deal fall flat.
Issuers have been checking in with bankers on a daily basis to monitor the market, and the best bet is that investment-grade names will have the strongest appeal to risk-averse investors.
Certainly, there is a pipeline of deals waiting, including a revived dollar sukuk for the Republic of Indonesia. It has mandated Citi, HSBC and Standard Chartered for the deal, which will raise up to $1 billion. The sovereign had mandated the same three banks for a sukuk mid-last year, but ended up shelving the deal.
It sent out a second request for proposals a couple of weeks ago, but ended up picking the same three banks. The Indonesian sovereign could issue either a five-year or 10-year sukuk. So far, it has only issued one Islamic deal — a $650 million five-year sukuk in April 2009 — so if it chooses a longer tenor, it would be a debut at that maturity.
The choice of tenor might reflect the investor-base that Indonesia is targeting. “The Malaysia sukuk deal showed a stronger skew of Middle Eastern buyers in the five-year tranche and more conventional buyers in the 10-year tranche, so the preferences are quite clear,” said one banker.
The deal has not kicked off yet but a print could come around September or October. Documentation for Indonesia’s first sukuk in 2009 took a long time to prepare, but it is expected to be quicker this time since it has already issued once.
Elsewhere, the Republic of the Philippines had mandated banks for its peso global bond and bond exchange — but the deal is currently on hold due to volatile market conditions. Citi and J.P. Morgan are the global coordinators and joint bookrunners. HSBC, Goldman Sachs, Standard Chartered and UBS are joint bookrunners.
Deutsche Bank, which recently lost its Philippine capital markets and treasury solutions head Martin Syquia to Nomura, is absent on the trade. Meanwhile, Standard Chartered is joining as a bookrunner for the first time.
Aside from these two changes, the Philippines has roughly kept to the same line-up of banks but has been rotating the global coordinator role — to assess which bank does the best job, according to one banker. In the previous $1.5 billion bond in March, HSBC and Goldman Sachs were global coordinators. Before that, Citi and HSBC were global coordinators for its peso global in January.
However, the sovereign has routinely been mandating a large group of banks in recent times, and the days when just two or three banks were mandated for bond offerings seems to be over.
A few Korean issuers, including Hyundai Motors and Korea Finance Corp, are waiting to tap the dollar bond markets and could launch in September. Kexim is also said to be looking at dollar funding but has not mandated any banks as yet. Indian Railway Finance Corp, which recently held roadshows, is also waiting to launch a deal.