It has been a sorry time in Asia’s dollar bond market ever since Federal Reserve chairman Ben Bernanke mentioned the T-word on May 22 and ended a record bull run. Deals have been few and far between and many of the bonds that have got across the line have received a notably tepid response — both in terms of order books and secondary market performance — despite the often juicy premiums up for grabs.
Asian investors are simply not ready to get back into the market. With secondary prices looking attractive and lingering fears about what any change to the US quantitative easing programme might mean, they are tiptoeing around new issues and showing very little conviction.
You can hardly blame them. Asia’s bond market has been one of the chief beneficiaries of the Fed’s money-printing machine and no one is sure what the landscape will look like when it is taken away.
But there have been a few bright spots. Those issuers that have ventured into 144A territory have been rewarded for their efforts. Korea Gas scored a $6bn order book for its $500m five year bond in late July, with US investors taking 36%. And Baidu managed to print a $1bn five year deal even as equity markets fell in response to less than positive PMI data from China last week.
While Asia bond issues have shrivelled in recent weeks, the US market has been on a tear — some $33bn of new deals came last week alone. And not just from US names. In addition to China’s Baidu, companies from Nigeria, South Africa, South Korea, Turkey, and Greece — yes, Greece — were able to sell deals at least in part to US investors.
One reason for the stoppage in Asia is uncertainty over pricing. While the maturity and depth of the US market mean that there are usually plenty of comparables from which to gauge an appropriate price when market conditions change, bonds in Asia need much more of a price discovery process.
This can be especially difficult considering the myriad levels of state and family ownership that make like-for-like comparisons that much harder — and often mean investors and issuers have very different views on fair value.
The US holds a lot of promise for Asian credit. The investor pool is deeper and — as has been shown in recent weeks — more robust. While Asian investors have largely run for the hills, their US counterparts are taking advantage of the premiums on offer in the market.
Of course the 144A route is not for everyone. It requires an extra level of work and disclosure that some will find too costly or too intrusive for their needs. And if the funding target is a mere $200m-$300m, then issuers would be better off sticking with home-grown investors.
But for companies that want benchmark size dollar bonds, the US is looking like a safer bet. Now’s the time to get in, before Bernanke makes good on his May statement.