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Local markets - The lure of the local market

Excessive reliance on short-term foreign currency debt lay behind the Asian financial crisis. Asia needs local sources of long-term funding to prevent a recurrence, especially with the banking systems still so unhealthy. Bond markets in a range of local currencies are springing up, with active encouragement from financial authorities. Peter Lee reports.

One of the clearest lessons of the Asian financial crisis has been the danger of companies relying on poorly supervised and ill-run banks as their sole source of funding. Diversifying capital sources by building up local securities markets is a standard prescription for Asia handed down from international bodies such as the IMF and market practitioners everywhere. This year, such debt markets have been taking off, notably in Indonesia, Korea, Malaysia, the Philippines, Singapore and Thailand to complement the already established Hong Kong dollar market.

There are clear advantages for local investors and corporate risk managers in developing such local sources of funding. Earlier this year, HSBC Markets led a M$500 million (US$132 million) eight-year fixed rate bond for Malaysian energy company Tenaga. "Previously, Tenaga, which has 100% of its revenues in ringitt, had all of its debt liabilities in foreign currency," says Mark Bucknall, global head of debt capital markets at HSBC Markets. "At the same time you had Malaysian insurance companies crying out for ringitt assets which had only government paper to buy. So when you offer them Tenaga at a small spread to governments, they love it." HSBC points out that it has done bond deals this year in Malaysian ringitt, Indonesian rupiah, Thai baht, Philippine pesos, as well as Singapore and Hong Kong dollars.