Asia’s debt bankers were predicting as 2009 drew to a close that the start of this year would be busy and interesting. They were right. For years the Philippines has set the tone in Asian sovereign debt, issuing a benchmark note in January that tests investors’ appetite for ROPs – as the republic’s bonds are known – and for Asia sovereigns in general. Generally regarded among investors as Asia’s savviest frequent issuer, the Philippines enjoyed first-mover advantage on $1.5 billion of bonds sold in the first week of January, with both tranches of the deal heavily oversubscribed. Now comes the interesting part. Indonesia, Malaysia and Vietnam are all looking to tap the dollar debt market and will be hoping to enjoy the strong demand and tight pricing that the Philippines obtained. Whether they are able to do so will say much about the extent to which investors are distinguishing between the recovery stories of Asia’s disparate economies.
Indonesia and Vietnam sit at almost opposite ends of the risk spectrum for Asia’s sovereign debt. The former enjoys similar esteem to the Philippines thanks to the efforts of finance minister Sri Mulyani to improve transparency and borrowing habits. Vietnam, however, has not pulled off a global deal since its debut offering in 2005. Since then the country’s stock markets have gone from being the region’s best-performing to almost its worst, the fiscal deficit has risen and there is deep concern among investors about inflation.
At Euromoney’s Vietnam conference at the end of 2009 market participants were optimistic about the prospects of a sovereign deal helping to develop the nascent domestic market by creating a yield curve. Year-end sales of short-term treasuries were sluggish, however, with local media reporting that investors were unhappy with the low yields on offer and bought only $73 million of a proposed $200 million deal.
Vietnam’s goal of raising about $1 billion in a global deal this year looks at the time of writing in early January to be ambitious but Euromoney understands that three banks have been mandated on the deal and that conditions are though to be broadly favourable.
In Vietnam’s favour is the sheer amount of uninvested cash held by global bond funds. The money has to go somewhere, and Vietnam will offer high yields to obtain the capital it needs. The country has also been working harder to sell its story. Investors praised a global conference call organized by Credit Suisse last year for providing clarity about the government’s plans, and hope that there will be more like it.
The success of the Philippines’ deal supports the idea that a broad recovery in emerging markets debt is under way. If Vietnam is able to pull off a $1 billion deal at reasonable pricing, it would suggest that real risk appetite has returned among emerging markets bond funds. It might also prompt more of the region’s riskier credits to ponder a swift return to the global capital markets – sources in Mongolia, for example, say the government bitterly regrets missing its last opportunity to borrow.
