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Capital Markets

KfW pulls the lid off local bond markets

Until recently only multilaterals with a regional mandate, such as the ADB and IFC, have shown much interest in issuing bonds in Asian currencies. But KfW is planning a three-pronged attack on local-currency issuance in 2006. So are local markets about to take off?

THERE IS ALREADY a pan-Asian bond market but it is almost entirely US dollar denominated. It’s a relatively vibrant sector used by the international and regional multilaterals and other top-quality issuers. Virtually all the international borrowers with sizeable programmes have come to view Asia as an essential pool of capital for deep and efficient financing. Asian central banks hold more dollars in bonds than any other investor constituency. Meanwhile, Asian borrowers have sought to access European and US institutional investors but mainly using dollars, although euro issuance has picked up.

Since the Asian financial crisis of 1997/98 the dollar market has been the main focus but, recently, the potential from developing local-currency bond markets has sparked excitement. This theme was a focal point of the World Bank meetings in September. Speak to senior bankers at the large international banks about local markets

and they get animated about the possibilities and opportunities. Talk to certain international borrowers with billions of dollars to raise annually and the excitement is obvious.

So far, much of the local-currency action has centred on the Asian Development Bank and the International Finance Corporation, which have been at the forefront of innovation in local markets in the region.

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