Quiet bond market may spring to life this week

Indonesia and the Philippines could price deals this week. The success of these transactions will be a key determinant in the outlook for Asia's bond markets.
The Asian bond markets began the New Year quietly, but more activity in both primary issuance and secondary trading is expected this week. Two sovereign issuers are expected to come to market shortly, namely the Philippines and Indonesia, and the outcome of these deals will determine the outlook for AsiaÆs G3 bond markets for the next few weeks, according to market observers.

Indonesia is a strong candidate to price the first bond transaction this year. The sovereign, rumoured to be raising $2 billion, will begin its roadshow for a benchmark 144A transaction on Tuesday. Barclays, HSBC and Lehman Brothers are managing the deal.

A number of syndicate bankers believe this will be too large a sum for the market to handle. ôI hope Indonesia doesnÆt raise the full $2 billion. WeÆve been advising our clients on how to build a good foundation for the market in early January: this means good issuers bringing to market transactions that are not too large, and pricing with a cushion to soften the impact of any negative headlines,ö says a syndicate banker. ôI think $2 billion is too large.ö

ôThe bookrunners for this deal have a heavy responsibility,ö says another. ôThe market needs to see it perform well to reassure investors that life is returning to the Asian G3 markets. A badly executed deal will delay a return to business.ö

Meanwhile, the Philippines is expected to price a $500 million transaction soon -- although the deal is as yet unannounced and the mandate still undetermined. However, the sovereign could price a deal as early as next week given its SEC shelf-registration. (This enables the country to fulfil all SEC registration-related procedures up to three years before the actual public offering, and to speedily tap the market. The Philippines is the only SEC shelf-registered sovereign in Asia.)

Outside of the sovereigns, a Korean issuer such as Korea Development Bank is also a potential candidate for opening AsiaÆs debt capital markets, according to one banker, but it is the sovereigns that high-yield borrowers will be watching closely.

ôIf the sovereigns go well, then high-yield corporate issuers will follow, opening the bond markets in earnest for 2008,ö says a banker.

The Singapore energy services group KS Energy Services has recently mandated ING for a high-yield trade, details of which are unknown. Meanwhile, the pipeline for Chinese property developers waiting to come to market now stands at between $5 billion and $6 billion. ôIn a strong market, this figure would be $10 billion. As things stand today, I donÆt think that more than $3 billion can realistically get done.ö
¬ Haymarket Media Limited. All rights reserved.