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Asia DCM bankers ready for Basel III bond rush

Basel III will trigger a wave of bond deals in Asia; China and India to lead the way.

Debt capital markets bankers in Asia are preparing for a rush of Basel III-compliant bond deals as banks look to meet international capital requirements.

The majority of the business is expected to come from China and India as those countries’ banks look to strengthen their reputations among international policymakers and investors.

“Now we are at the forefront of what is going to be the offshore issuance,” says a DCM banker in Hong Kong. “The big strategic issuances are still ahead of us. You will see smaller issuers from India at the start who need to raise capital out of necessity. In China, I expect the big issuers to come first.”

The Basel III-related deals should start happening towards the end of September and throughout October, according to the banker, who is working on some deals himself.

The banking industry is not yet in a steady
state for a variety of reasons


“We have been going back and forth on structures for the best part of a few months now,” he says. “It’s all about to happen.”

The investor base now understands well the structures of the Basel III-compliant deals, having seen plenty of  issuance from both European and Asian sources, the banker says. As well as China bank capital, he is also paying attention to Korean investment grade issuance.

A second Hong Kong-based DCM banker agrees that China – where financial institutions are regulated by the China Banking Regulatory Commission, under chairman Shang Fulin – has created a lot of the expectation for Basel III-compliant issuance. “There’s a focus on the Chinese banks,” he says. “Some have come out to signal they are probably looking at issuances. There’s a large amount of expectation of what’s going to happen.”

But the banker also believes that while the Chinese banks will make a big splash, there will still be some diversity in the origination geographically.

“The issuance is going to be spread out across the region,” he says. “I don’t think we are going to see 20 from China and none from anywhere else. I don’t think there will be a tipping point, but the scale of the Chinese banks will be different to other places. One of those deals can change the way the market looks. My expectation is that it will be more gradual.”

He says there is some confusion about how the banks operate, he adding: “There is the headquarters and then the offshore office. They are not necessarily synonymous in Chinese banks.”

Further reading

China: special focus  

According to a report released by ratings agency Moody’s in August, Basel III attempts to address the shortcomings that were identified during the global financial crisis and should improve the ability of banks to absorb losses to their capital and shocks to their funding, while remaining a going concern in the event of an idiosyncratic or systemic loss event.

“Basel III seeks to accomplish these aims through increased capital requirements, the use of capital and liquidity buffers, leverage constraints and the presence of contingent capital instruments, which may help to recapitalize banks, potentially avoiding the need to put a bank into resolution or liquidation,” says Moody’s.

“However, the banking industry is not yet in a steady state for a variety of reasons. Since June 2012, when Moody’s repositioned ratings downward for many banking groups, including the global investment banks, substantial improvements have occurred in bank fundamentals, such as reductions in leverage, higher capital levels, and the implementation of firm-wide stress testing and more robust liquidity and funding profiles.

“Nevertheless, capital requirements under Basel III will continue to pressure many firms to increase capital further, as buffers begin to phase in starting in 2016.”

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