Asian bond markets are growing at a frenetic pace despite uncertainties in the developed world, and despite a lack of deals this year, Indonesia will become a much more significant component of the Asian high yield market, according to Stephen Williams, head of DCM, Asia Pacific, global capital financing at HSBC.
“We’re in the midst of a very exciting time in the development of the Asian financial markets. While the markets surge in the Asia region, uncertainties in the developed world once again are at the forefront of everybody’s minds. The Asian bond markets feel these headwinds and at the moment are taking them on full steam,” he said, at the Euromoney Seminars Indonesia High Yield Bond and Fixed Income Forum 2012 in Singapore on September 26.
Referencing the fact that the Asian G3 bond market has recently exceeded the US$100 billion mark, he noted that the market has seen a tenfold increase in size over the last ten years. This indicates a marked shift away from the bank market and the equity market.
“That said though, the high yield market this year has been relatively slow. This was expected given a sensitivity to greater volatility globally, however there are very many reasons to be opportunistic and to look forward to a very bright future.”
Indonesia’s role in this is key, he argued, due in part to the country’s positive sovereign rating trajectory combined with its continuing robust growth.
“Going forward, while Indonesian borrowers will continue to have the luxury of flush liquidity from the syndicate bank loan market, we do expect the country to become a much more significant component of the overall Asia high yield market,” he said.
It has been noted by several speakers at the conference that a primary reason for the lack of issuance in Indonesia’s high yield bond market is the fact that the country’s banks are willing to loan as much as US$750 million for as long as ten years, at more competitive rates than the bond markets are able to offer.
However, according to Williams, borrowers will not abandon the Indonesian high yield market, particularly as banks will face increasing pressure on their capital usage and look to disintermediate themselves from the financing cycle. He believes the market will see deals from Indonesian corporates looking atliability management, as well as from newcomers to the market.
“One of the interesting themes that HSBC has been closely involved with in Indonesia this year has been liability management. We expect more such transactions over the next 12 months, both in refinancing and rationalisation of financing terms to accommodate future growth.”
In addition, he also expects to see greater issuance from emerging companies from sectors such as consumer, retail, media and telecoms, which will add to the on-going supply from the resources and energy space.
“No doubt such transactions will be well received by the investor community as the Indonesia consumer story continues to pick up steam,” he concluded.
During a roundtable later in the day, others at the conference agreed that issuance in Indonesian high yield will pick up next year.
“Indonesia commodities. That’s what we’re going to see. That’s one obvious main sector coming out of Indonesia. I think investors would like to see more diversification out of Indonesia outside of commodities. Investors would like to see additional supply from where it’s lacking to allow for the diversification and that’s going to drive the pipeline,” said Eric Greenberg, managing director in the financing group at Goldman Sachs, Asia.
“We will see other industries, consumer, retail, media, telecom, infrastructure. The whole country is doing better than before and when there’s money to be made, I think companies will choose to get the capital that they need in order to fuel this growth. From our perspective the [Indonesian high yield] market is going to grow 15-20% on an annual basis going forward,” added Wallace Lam, managing director and head of high yield capital markets for Asia at HSBC.