ONE CREDIT, THE Republic of Indonesia’s 30-year bond, aptly sums up the status of Asia’s debt market. It is trading at around 210 basis points over the equivalent US benchmark, so investors are faced with a choice: place funds at three-month Libor or buy 30-year paper from Indonesia and earn an extra 150 basis points for their trouble. It is a simple decision to make, of course, but investors are falling over each other to make the wrong choice.
"You’re getting 1.5% uplift from three-month bank money to 30-year Indonesian risk," says Stephen Williams, co-head of global capital markets, Asia-Pacific, at HSBC. "It’s probably not where it should be."
That’s quite an understatement, but here is another anomaly. In February, the State Bank of India issued tier 1 capital in the form of a $400 million perpetual non-call 10.25-year bond. Paying a coupon of 6.439%, the bonds priced inside the prevailing price for a similar issue by Dresdner Bank.
At a recent global conference on high-yield debt, the head of Asian leveraged finance for a US bulge-bracket bank stood up with trepidation to make his presentation with one slide entitled Why it might be different this time.