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Opportunities remain for debut issuers

By Morgan Davis
12 May 2020

Asia’s bond market has remained reasonably resilient amid the Covid-19 pandemic, despite a big fall in deal flow. Indonesia's Hutama Karya showed just how strong the market can be, when it sold its debut dollar bond.

Hutama Karya, a quasi-sovereign construction firm, raised $600m from a 3.75% 10 year bond last week.

The transaction may have come as a surprise, as the Covid-19 pandemic has presented plenty of challenges for established borrowers, let alone new issuers. In addition to coronavirus-induced volatility, market participants have also faced plummeting oil prices, new threats of a US-China trade war and demand for significant new issue premiums recently.

Naturally, issuance in Asia has largely been restricted to well-known credits, as well as those willing to pay to get a trade done.

But Hutama Karya broke that trend last week.

The borrower hit the market the day after US president Donald Trump shook investors with his latest taunts of punishing China for the Covid-19 pandemic through tariffs and trade restrictions.

Despite that, Hutama Karya managed to entice investors, leading to a $4.2bn order book at its peak, and proving that new borrowers can still get deals done.

One of the notable parts of the Hutama Karya transaction was its reliance on a virtual roadshow. Remote investor calls and videos have become a necessity this year, given social isolation practices and travel bans.

The remote approach to roadshows has long been used for established borrowers, and those with comfortable, long standing investor relationships. But having a first time borrower meet investors virtually was novel, and something bankers admit they wouldn't have thought possible three months ago.

Other first-time issuers can now replicate this approach as well.

Of course, not every debut credit can sell a bond in this market. Hutama Karya had a big advantage – it is not only state owned and investment grade rated, but its bond was guaranteed by the Indonesian government.

This proved to be a big appeal to investors. But not all other new issuers can have similar features to their transactions.

This means that, inevitably, many would-be borrowers will continue to be sidelined from the dollar market for some more time still. The primary Asian bond market may present more stability and options now than it did just a month ago, but risk appetite is low and markets are still choppy.

However, that shouldn’t stop all debut borrowers from taking the plunge.

The international bond market offers an opportunity to try a new – and diverse – funding channel, something that will only prove to be more useful, should the market take a turn for the worse or other funding routes be cut off.

Having a contingency plan is never a bad thing. As Hutama Karya proved, debut dollar bonds are sellable — as long as they tick the right boxes.

By Morgan Davis
12 May 2020