Newcomers to Asia’s dollar bond market have had a tough time in recent weeks with many deals falling by the wayside.
Property developer Ananda Development was hoping to become the first Thai issuer to sell an offshore renminbi bond and the first corporate hybrid in that market earlier this month. But unfamiliar with the name, investors stayed away.
It was the same story for Indonesian property developer Metropolis Propertindo Utama (MPU). It struggled to sell a five-year non-call three and bankers were forced to fold the deal on November 6, though sole global co-ordinator Credit Suisse is said to be trying to resuscitate the bond this week.
Their failure is a pity. The region’s bond markets could do with an injection of diversity. China has accounted for an average of 50% of all bond issuance in Asia ex-Japan every year since 2008, according to Dealogic. South Korea was responsible for about a fifth during that period and India 10%. Bringing up the rear are Thailand, Malaysia, Hong Kong, Singapore and Indonesia which have remained steadfastly in the low single digits.
The concentration in geographies is worrying because Asia’s bond markets hinge on China, where bond issuance is expected to balloon even further as the country’s financial markets globalise. That leaves the Asian bond markets more susceptible to risks arising from China’s economy.
Chinese liquidity crunch in June highlighted the importance of monitoring monetary conditions onshore, while investors are beginning to question government support of China’s state-owned enterprises as Beijing looks to increase private sector involvement in the economy.
Some of the fault for China’s dominance lies with bondholders. In recent months, investors have proved wary of buying credits that are not well known or have short track records in the capital markets.
Yet the reticence of investors to jump into the bonds of the unknown is still preferable to the mood earlier in the year when almost no deal was considered too risky. Issuers should accept these setbacks as part of a learning process and ensure they are better prepared to meet the demand of international investors next time round.
Such was the case with Vingroup, which was able to price a $200m deal last week after failing to attract enough demand in December 2012. In the intervening 11 months, the Vietnamese real estate company improved its finances and then spent a week on a roadshow offering improved covenants.
It is hard to fault investors for wanting to rely on familiar credits with solid track records, but buyers should at least try to keep an open mind when it comes to non-Chinese issuers especially those willing to work on their finances and documentation. Asia’s emerging and frontier markets will continue throw up new names as their economies grow, offering investors the diversity and yield pick-up they crave. They represent opportunities as much as they represent risks.