Asian bond issuers have rarely faced a more harrowing market. After a record start to the year, many issuers are now putting their plans on hold in response to tumbling investor confidence.
It's hard to blame them, especially when a €100bn bank rescue plan barely makes a dent on sentiment. The announcement over the weekend that the Spanish government was seeking resources to recapitalise the country’s banks certainly gave Asian investors some confidence, but in the European session investors were more sceptical. By the time US had digested the news, the whole thing was irrelevant, at best.
That rapid swing from euphoria to a much more familiar feeling — depression — shows the hurdles facing bond syndicate bankers in Asia. Those deals that require overnight execution, in particular those being sold into the US, have to navigate different timezones where the same piece of news can be interpreted in wildly different ways.
But smart bankers still know how to get deals done. A favourite way is to rely on a tried and tested strategy for dealing with choppy markets: shorten the bookbuilding period.
Swire Properties used this strategy to perfection on Monday, when it closed the order books for a $500m bond at 3pm Hong Kong time — before some European investors had even arrived at their desks.
Size matters
It clearly helps that the single-A rated Swire Properties is a well-known name to Hong Kong investors. Not many companies would be able to build a $5.8bn order book before Asian markets closed. But even lower-rated companies will be able to follow this example, especially if they want relatively small size.
Investors often complain that small deals are illiquid in the secondary market, making it hard for them to value their holdings and even harder to liquidate when times get tough. But bankers can turn this negative into a positive by emphasising to investors — in particular, high net worth individuals — that there is value in buying deals that are not proxies for macroeconomic bets, but rather trade based on credit concerns about the issuer.
This is not easy. High net worth investors are fickle at the best of times, and when they see nasty headlines about Greece, they have no trouble turning their backs on the market. After all, they do not feel forced to invest in the way that hedge fund managers do.
But by stressing the benefit of a particular credit, and lining up so-called "friends and family" investors to provide an anchor order book, bankers can ensure that small deals manage to squeeze their way through narrow windows.
The trick with these deals is, of course, lining up those anchor investors. Once they are in, bookbuilding can be rapid. The usual method is to turn to a company’s clients, related corporations or those operating in the same sector for early support. Failing that, it may be worth inviting one or two aggressive Asian lenders into a deal, offering them a bookrunner slot in exchange for a big commitment. That can make a big difference to the final outcome.
It is clear that Asia’s bond market is in a pretty sorry state. But the success of Swire’s deal, and the ability of bankers to contain bookbuilding within Asian trading hours, means that small, rapid deals should help keep bankers busy over the next few hours. These deals will be tough, for sure. But they will also be lucrative.