The success of the Republic of the Philippines’ US$1.5 billion benchmark deal that was priced on January 7 has given bankers and investors hope that Asian borrowers may finally be able to follow with their own international bonds after months of inactivity.
Asia ex-Japan’s G3 public bond market has effectively been closed for deals worth over US$100 million since September, but this standstill ended when the sovereign borrower successfully priced its 10-year benchmark offering.
Its bond issue drew a stunning US$6 billion in orders, four times oversubscription, from 281 investors. The strength of interest excited observers, and has emboldened several other borrowers with their plans to follow the Philippines into the market.
One senior debt banker notes that an opportunity now exists for a select group of issuers such as “sovereigns, the strongest quasi-sovereigns and blue chip corporates” to follow with their own bonds.
The Export-Import Bank of Korea (Kexim), one of Asia’s most prolific issuers, could be next. The Korean state policy bank is aiming to sell a five-year deal of about US$1 billion in the next few days, say market sources. It is believed to have mandated Citi, Deutsche Bank, HSBC, Merrill Lynch and RBS as bookrunners.
Other sovereigns such as the Republic of South Korea and the Republic of Indonesia are also interested in issuing US dollar-denominated bonds, though the banker says he doesn’t think that will happen until at least late January.
“I don’t think either one is about to announce an issue imminently but I wouldn’t be surprised to see them in the coming months, sometime after Chinese New Year (January 26-28).”
All eyes on Kexim
The Philippines government was a predictable name to try and reopen the international bond market. The sovereign has made a habit of regularly tapping investors for US dollar bonds in January.
In addition to the level of demand it received, bankers and investors praised the deal for being well priced and swiftly executed. Joint bookrunners Credit Suisse, Deutsche Bank and HSBC helped price the bonds to yield 8.5%, at the tight end of guidance and a premium of 23 basis points over its existing bonds due 2019.
The level of investor demand for the Philippines’ deal signals that investors are ready to return to market if they see the right name at the right price.
“Philippines got a very strong result [which] is encouraging given the state of the market, which has been quite challenging for the last year,” says a banker close to the deal. “It was helped by very strong domestic interest and a broad distribution.”
The sovereign’s borrowing ambitions were aided by the fact that market conditions have improved materially in the last two months, reviving confidence among bankers and issuers alike that the interest finally exists for deals to be done.
“I think the market is substantially better,” says the banker. “Having said that, the last few days in equities have been rocky, so it doesn’t mean that there’s no risk but it certainly looks a lot stronger than it was three to four months ago.”
Borrowers and bankers alike will be praying that the newfound sentiment of global investors will last, given the sizeable backlog of borrowers who want to tap the market as soon as they can. Their plans could well hinge on the success of Kexim’s imminent transaction.
“A lot of people were still away last week, so how they will react will depend on how they see the Philippines deal and how Kexim goes,” says the senior debt banker.