The first few months of 2006 had all the makings of a career year for the Asian debt markets. However, as March was coming to a close, global uncertainty with regard to US interest rates levels saw liquidity evaporate, spreads push out and deal issuance all but dry up.
At first glance, it would appear that the Asian debt markets have imploded under the weight of their own success. The high levels of liquidity in the marketplace had made it easier and cheaper for issuers to sell deals, and alternately for investment bankers to successfully pitch deals. But once volatility ate away at sentiment and investors became increasingly risk averse issuers balked at coming to market at levels that now seemed too expensive.
It is not all doom and gloom. At $19.5 billion, issuance is up well over 25% in comparison to this time last year, and on the whole spreads, most notably among the higher quality issuers have remained stable. In fact some have argued that this correction was long overdue and that we are only now beginning to see a market that is pricing deals at levels that are more in line with the underlying fundamentals of the respective credits.
What it has meant is that the regular and repeat benchmark borrowers such as the sovereigns and quasi-sovereigns, most notably those in Korea, have opted to hold off tapping the market in lieu of more favourable conditions. This fact has impacted some of the bigger debt houses, like Citigroup, Deutsche Bank, and JPMorgan (to name a few), and delayed a large proportion of their respective league table credit.
Indeed, whereas Citigroup, Deutsche and JPMorgan have historically dominated the top three places on the G3 ex-Japan bond league table, top spot at the half way mark belongs to Morgan Stanley. The US investment bank, with issuance volume at $3.1 billion, hold an almost $1 billion lead over number two, Citigroup.
It would take a person with a considerable memory to remember the last time Morgan Stanley topped the first half bond league table.
It is undeniable that Morgan Stanley has only moved into the top spot following the closure of two benchmark sized deals for DBS and PSA International, of which it was sole books on both.
PSA is a longstanding client of Morgan Stanley, and the fact that the American bank co-underwrote a $1.8 billion bridging loan for PSA's purchase of 20% of Hutchison Ports holdings, meant few were surprised that it got that mandate.
By contrast the DBS transaction - a $900 million upper tier two transaction - has been the subject of much conjecture and debate throughout the market, with DBS promoting Morgan Stanley to sole books at the eleventh hour ahead of fellow joints leads Deutsche Bank and JPMorgan, as well as its own capital markets arm. This prompted speculation that Morgan Stanley had made an independent pitch to the borrower following a joint pricing proposal the evening prior to pricing.
Why this is interesting, is that with the exception of a marginal alteration in the fee breakdown û Morgan Stanley took 40%, Deutsche Bank and JPMorgan 30% each - the elevation to sole bookrunner provided enormous league table credit. Some in the market remarked that it was a somewhat dubious tactic by Morgan Stanley, while other believe it to be a master stroke by the investment bank.
Whatever the underlying reason for DBSÆs choice it is hard to deny the fact that Morgan Stanley has been a lead-manager on each of DBS' seven previous dollar-denominated international deals.
Despite the controversy, Morgan Stanley is far and away the leader in league table credit on the back of the PSA and DBS deals which had a combined value of $1.9 billion.
The question now is whether or not Morgan Stanley can parlay this success into winning more benchmark mandates and maintain its lead at the head of the table. This will be a task easier said than done, as frequent issuers prepare to return to market in the second half.