Amid all the news last year of markets being shut, of dwindling issuance and of debt bankers being sacked as business dried up, there was one positive story for those paying attention to Asia: the remarkable rise of the regions local-currency bond markets.
Companies in Asia have been issuing increasing amounts of debt in their domestic currencies for some years but 2008 will be remembered (among other things) as the year when Asia substantively turned away from the G3 markets and looked inwards for money. While capital-raising in the G3 currencies shrank, funding in other currencies in Asia rose from an equivalent of $148 billion to $276 billion. As dollar investors in particular nursed their wounds, investors across Asia turned their eyes inwards to the companies they knew best and bought their debt in their own currencies.
Much of this story was driven by the second remarkable trend in the years debt markets: the increasing volume of issuance from Chinese companies in renminbi, a steady trickle that many of the regions bankers believe heralds the downpour to come when Chinas regulators open the markets. To put the figures for local-currency growth above in context, without renminbi issuance Asias local-currency debt volume rose from $112 billion to $158 billion.
The extent to which this growth reflects a short-term trend facilitated by the closing of the usual channels for raising debt is unclear. It might be that as markets return to normal, Asias companies and sovereigns will resume raising most of their funds in dollars. However, the extent to which last years growth in local-currency issuance was driven by China suggests the opposite.
The next question is where that leaves the regions debt franchises. The growth of non-China, non-Japan local-currency markets will favour banks that have strong presences across the region rather than offices in regional hubs from which bankers fly to originate debt. HSBC and Standard Chartered share the top spots in almost all the regions local-currency markets on the strengths of their on-the-ground presence, while the latter bank was not even ranked in the G3 currency league table for financial year 2008.
Neither bank, however, has made much headway in China, where local franchises still dominate and even the banks with the strongest connections to Chinese securities houses, UBS and Goldman Sachs, are minnows. In the period from March 31 2008 to April 1 2009, UBS was the only foreign house to scrape into the top 10 bookrunners for Chinese debt issuance while HSBC and Standard Chartered were 31st and 49th respectively.
Debt capital markets heads across the region expect Chinese regulators to liberalize the rules for domestic companies to issue in renminbi soon, and are jockeying for position accordingly. Both HSBC and Standard Chartered talk of being excited by the opportunities available in Chinese debt markets, while firms including Deutsche Bank and Credit Suisse that have recently obtained licences for securities joint ventures claim that these will stand them in good stead when the time comes.
Its unclear, however, to what extent the Chinese authorities will see the benefit of allowing foreign houses to run renminbi bond deals when there is plenty of pent-up domestic demand if the pre-bust frenzy surrounding domestic IPOs is anything to go by and when the countrys top banks are already running the show. The list of top-five bookrunners for the league table mentioned above contains no surprises: in descending order it runs ICBC, CICC, Citic Securities, CIC, Bank of China.