Taiwan bond investors want more government action

Taiwanese participants in FinanceAsia''s local currency bond poll 2001 are unimpressed with the government''s contribution to developing the local bond market.
Judging by the feelings of Taiwanese investors who participated in FinanceAsia's local currency bond poll, the government needs to do more than just talk a good game when it comes to the debt market.

For example, on numerous occasions in the past year cabinet officials have said that the 0.1% transaction tax imposed on corporate bonds would be scrapped in the near future, but this still has not been passed into legislation.

It is no surprise then less than a third of the 115 poll participants expressed satisfaction with the government contribution to market development, with around a fifth judging the state's role as unacceptable.

Liquidity was one area in which investors desperately want to see improvement, according to 43% of respondents. One fund manager expresses the view that the government can have a positive impact in this area.

"I do not think the government has designed a complete system to improve the liquidity and efficiency of the bond market," he argues. "A bond index or government benchmark would make a difference."

Another recurring criticism of the market concerns the lack of hedging instruments, with 61% deeming this unacceptable. "A bond futures market is needed to provide effective hedging and facilitate the development of derivatives," comments one investor.

Over three quarters of participants agreed that development of new products was not up to scratch. Progress in this area could come through the securitization market: a draft law has been drawn up and will be considered when the Legislative Yuan meets on September 16. It could in principal be passed into law by the end of the year, but it would not be advisable to put money on it.

One further issue that came up time and again when looking through the comments of investors is that they want to see a dramatic improvement in the performance of the local rating agency, Taiwan Rating. Although the government did bring in the ruling that all deals must have a rating to increase confidence among investors, it has not had the intended effect because information is not timely enough.

"I am not satisfied with the performance of Taiwan Rating, because it is not accurate enough and there is a time lag in getting the transaction reports," grumbles one investor.

The mandatory rating process does not get a universal thumbs up either, because it discourages borrowers from the lower end of the credit spectrum and results in less diversity in issuance. This, however, could be resolved fairly according to one poll participant.

"You just have to regulate unrated corporate issuers so that they are required to provide more and regular financial information as well as consultation with investors," he suggests.

As far as preferred banks go, Chinatrust dominated the category of best overall bank for origination, sales and trading, getting 60% of the vote. Grand Cathay and Citibank came in joint second, both scooping 19% of the vote.

For the remaining categories, the results are weighted under a system where three banks could be selected with the best bank receiving five points; the second three points and the third, a single point .

Chinatrust once again secured the top spot for execution primary issues with a score of 27. In doing so, it beat off the challenge of Citibank, second with 18, and ABN AMRO in third with 16.

Following it's runner up spots in the previous two categories, as well as every category in the Singapore poll, Citibank finally made it onto the winners' podium by being voted best bank for corporate research and best foreign bank in the secondary market.

The bank's research score of 24 bettered the 19 points of Chinatrust and the 15 score registered by ABN AMRO. Where the secondary market was concerned, Citibank's 56 points easily topped the 34 of ABN AMRO and 17 of Deutsche Bank.

Full results of the poll can be examined in detail in September's five-year anniversary issue of FinanceAsia.

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