Week in review

Week in Review: Indonesian covid-19 bonds, Taiwan bank loans, Chinese mobile gaming, Café Amazon and PTT Oil Stations

How far will capital markets evolve to mitigate the threat of a possible next wave of the pandemic or will they, given a short hiatus, simply return to the old status quo? We welcome your comments and criticisms.

From the editor’s desk, April 17, 2020. 

Speculation is increasing as to what the ‘new normal’ looks like in the world of finance as countries begin to find some success in flattening the corona virus infection curve. Companies have reshaped business models and issuers are re-assessing their options for accessing the markets. The question is how far will capital markets evolve to mitigate the threat of a possible next wave of the pandemic or will they, given a short hiatus, simply return to the old status quo? 

Evidence suggests that the appetite for risk is returning to the markets for the right name, in the right sector and at the right price as the calendar rolls over into Spring. In Taiwan, for example, a country of almost 24 million and one that has shown exemplary handling of Covid-19 - just 395 cases as of April 16, and without movement restrictions, bank lending in the first quarter, although lower than a year earlier, is still robust.  

In Ben Hurley’s “Who cares about COVID-19? Construction lending in Taiwan jumps to record levels,” bank lending this year represents the second highest first-quarter total in a decade. Demand is not only spurred by low vacancy rates, particularly in the office space, but by Taiwanese firms re-shoring their production bases away from China in order to avoid US tariffs. Covid-19 exposing the concentration risk of China to the world’s global supply chain became another factor supporting the decision to relocate factories back to Taiwan. 

In China itself, as elsewhere in the world, mobile gaming platforms have become the ideal distraction to the reality of lockdown and social isolating. Game downloads surged in the week following Beijing’s decision to minimise movements in and out of Hubei and surrounding provinces. Reaching new players is the key to success in this market. 

Carol Huang’s “Chinese Mobile Gaming Is More Distribution Than Content” highlights that, as mobile games are normally free, revenues are generated by sales of virtual items that enhance the user experience. Existing game companies are building on franchised and legacy story lines, and player acquisition costs for newcomers are rising. There may be a massive market for games, but without a proper distributor, profits will be hard to come by.  

In the bond markets, the new normal accommodates increased issue sizes and longer maturities for some issuers, supported by a bid out of the US. As Adrian Murdoch’s “Indonesia’s pandemic bond debut shows promise but widespread adoption is doubtful” shows, the Indonesian sovereign borrower sold its largest ever bond (which included its longest ever tranche) as it raised funds to support efforts to contain the spread of the virus and shore up the economy against its impact. Deals need to be priced to go and primary markets are offering attractive new issue premiums to ensure success.  

Covid-19 is not deterring deal makers in Thailand either, as Christopher Chu’s “PTT Oil and Retail’s (PTTOR) IPO Extends ECM Deals In Thailand Amid Bangkok Lockdown explains. Even as virtual meetings and social distancing become more commonplace amid the pandemic, Thai corporates spinning off subsidiaries are well positioned to succeed. They are already well known by domestic investors and, therefore, unlikely to require introduction 

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