Asia’s debt capital markets experts expect a busy if uncertain year in the region’s credit markets, according to an informal survey carried out by Euromoney this month. A poll of syndicate and origination bankers as well as analysts in Asia-Pacific, asking what the key themes for the region’s debt markets would be, revealed a number of consensus themes, as well as key areas of disagreement.
Asked which debt products would be most active in Asia in 2010, all of the bankers polled stressed the importance of high-yield bonds, although some were more optimistic than others about how well markets would support these lower-rated companies in their bids for capital.
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“Issuers will continue to want to enter the market but at the same time understand the need to remain disciplined” |
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“We will continue to see the high-yield space develop” says Fergus Edwards, head of syndicate Asia at UBS. “Issuers will continue to want to enter the market but at the same time understand the need to remain disciplined. Many will be reticent to pay what the market is demanding at the moment, especially for debut issuers.” Investors will be looking especially for high-yield issuance away from the China property sector, says Edwards, given that this was the dominant theme in high yield last year and investors are keen to avoid overly concentrated portfolios.
Korean debt
Bankers expect Korea to continue to supply much of the region’s G3 currency debt, driven by the banks’ need to raise funds in the face of the stricter capital requirements that are a region-wide theme. Korean debt accounted for almost 40% of G3 (mainly dollar) issuance in Asia Pacific ex Japan last year, and that theme is expected to continue.
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Where are the opportunities in Asia-Pacific debt in 2010?
What events/factors will most determine the course of the year in debt markets?
What are investors most concerned about at the moment?
“Interest rates and a potential China bubble.”
What most concerns you at the moment? |
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Australian banks were also active issuers of G3 debt in 2009 but opinion is divided as to whether those volumes will be matched this year. There has certainly been plenty of issuance so far: the list of the top-10 largest G3 bond deals in Asia-Pacific in January includes four Australian names, with ANZ, NAB, Westpac and Macquarie all coming to market for a combined total of more than $7 billion. The fact that issuers were so active in January reflects issuers’ understanding that they need to get to market when they can. As a senior debt banker (among several who replied to Euromoney’s questions but did not wish to be named) puts it: “Credit spreads are already back at tight levels – we are not going to see the fantastic conditions of early January persist throughout the year, and I suspect that the credit markets will be vulnerable to uncertainty driven by any signs of economic weakness.”
The increasing numbers of investors looking to Asia for diversification and strong returns ought to be able to find value in all this issuance from financial institutions, according to Viktor Hjort, Morgan Stanley’s Asia credit and equity derivatives strategist. He gives four reasons for picking financials as his recommended sector for 2010 in a report, Asia Credit Outlook: “first, financials have lagged both corporates and sovereigns in the spread rally; second, bank capital is arguably still mispriced; third, the regulatory trends are firmly credit positive; and fourth the business models are more intact and outlook more constructive than for financials in other regions.”
What’s important
The bankers polled perhaps disagreed most on the issue of exactly which of Asia’s increasingly active local-currency markets would be most important, variously citing Australia, Hong Kong, India, Japan, Korea, and Singapore. There was one answer common to all replies, however: China.
“Expect the range of [Chinese] issuers to increase,” says Graham Conran, head of debt capital markets for Asia ex-Japan at Nomura, “and to see more competition among underwriters as more of them are approved to underwrite renminbi bonds.”
China became the largest local-currency market in Asia-Pacific ex-Japan in 2009, but while bankers expect volumes to continue to grow the deals are expected to remain vanilla in structure and short in tenor, with bonds maturing in five or 10 years the expected norm.
