Recovery gains momentum — but so does competition

  • 15 Dec 2009
Email a colleague
Request a PDF

Into this wasteland rode Asia’s sovereign and quasi-sovereign debt issuers. They were prepared to pay-up to issue, and — despite ballooning deficits and conscious that the global economic fall-out would hurt their finances — they were among the few names investors could trust. The Philippines sold the first deal of the year, and Indonesia followed soon, after a pair of Korea’s state-owned policy banks tapped the market. Pretty soon the bond market was on fire.

2010 looks set to be very different for Asia’s sovereign borrowers. The bond market is widely expected to be in good shape come January, when issuers will face the choice of whether to pre-fund for the year or wait, betting it improves even further. Some have partially pre-funded 2010’s budget already. Sovereign funding managers are likely to find a more liquid market next year, but also a more competitive one. And some may decide to move away for a reliance on Asia’s dollar bond market, instead issuing Samurai or Islamic bonds.

In this roundtable discussion EuroWeek spoke to Asia’s three key dollar bond issuers: Indonesia, the Philippines and Korea. We found out their plans, predictions and aims for the year ahead — and got some insight into how they dealt with the unpredictable year just passed.

Participating in the roundtable were:

Andy Jones, co-head of global finance & risk solutions, Asia Pacific, Barclays Capital

Peter Pellicano, head of syndicate, Asia ex-Japan, Credit Suisse

Dilip Shahani, head of global research Asia-Pacific, HSBC

Rick Stoddard, head of debt capital markets, Asia, Bank of America Merrill Lynch (BAML)

Roberto Tan, national treasurer, the Republic of the Philippines

John Wade, head of primary debt markets, Asia Pacific, Royal Bank of Scotland

Rahmat Waluyanto, director of the debt management office, the Republic of Indonesia

Yoon-Kyung Kim, director of International Finance Bureau, Ministry of Strategy and Finance, Korea

EUROWEEK: Despite the turmoil of the first few months, Asian sovereigns had little trouble raising the funding they needed from the domestic and international capital markets in 2009. Were you surprised by the speed of the markets’ recovery?

Tan, Philippines: Not in any real sense. Many sovereign finance managers were wondering where all the liquidity would find its way to after the Fed started releasing lots of money into the system through quantitative easing. It had to go somewhere and less risk-averse investors were now on a search for yield, so it was expected that they would find their way to emerging markets.

Pellicano, Credit Suisse: It certainly wasn’t a surprise to see the domestic markets come back so quickly. Investors moved back to domestic bonds and key ‘hometown’ corporates that they had faith in and saw as the safe assets, so those markets fared very well.

In the international markets, the first reaction was to think back to the Asian financial crisis, but the pace of the recovery has shown how things have changed. Given where asset prices had shifted, investors were getting extremely attractive returns on sovereign and agency bonds at the start of 2009, with returns in or near double digits. Looking at those spreads, nobody expected us to be where we are now, but in the future people will look back at this period of rapid recovery in Asia as a sign of Asia’s ability to withstand a global crisis and the significant structural gains made since 1997/98.

Stoddard, BAML: The speed of the recovery in the new issue market was impressive. As expected following a market dislocation, sovereigns and quasi-sovereign led the way in re-opening the market, and continued to issue as the market strengthened throughout the year.

Jones, Barclays Capital: The pace of the recovery in Asia has been less of a surprise than in the US and Europe, simply because Asia clearly was not as deeply impacted in 2008 as the US and European economies and markets. The Asian sovereigns have not had to raise vast quantities of debt to pay for the stimulus packages, government guarantees and so on that the Western governments had to put in place in 2008, and that has boosted confidence in the region’s credit markets.

Shahani, HSBC: We were not surprised. Global policymakers were forced to react in a co-ordinated fashion to adopt aggressive fiscal and monetary responses to restore public and investor confidence in the banking systems. In our opinion, the protection of depositors and senior bank debt holders combined with guaranteeing new funding by large banks were critical in the turnaround. But the Federal Reserve driving its policy rate to zero and adopting quantitative easing (QE) was the main catalyst in encouraging risk taking. Real money, hedge fund and retail clients were forced to seek income from other products since there is virtually no return in holding short dated treasuries, money market funds or in deposits.

Wade, RBS: Actually the results for Asian sovereigns in 2009 reflect a few things. One: the hard work they had done in prior years building a dedicated global investor base. Two: the fact that the key sovereigns in the region(Korea, Indonesia, the Philippines) have put in place strong institutions since the 1997 crises. They have also benefitted from continuous fx reserve buildup and economic growth that has not been as affected by the US downturn as much as previously thought.

Waluyanto, Indonesia: I was very surprised by how quickly things returned. To give an illustration: the peak of the crisis was in October 2008, when we decided to stop our bond issuance, which we had planned until Dec 2008. At that time, Indonesia CDS was around 1,250, the rupiah-dollar exchange rate was Rp12,400, and the average yield of Indonesia’s 10 year bonds was 17.26% . But a year later Indonesia’s CDS was down to 160, the exchange rate was at Rp9,400, and 10 year government bond yields were down to 10.2%.

The Indonesian government and the central bank successfully dampened the impact of the global crisis, and luckily our banking sector was not exposed to subprime mortgage-related products such as CDOs. We were also helped by the fact that in the second half of 2009, the Indonesian economy was one of the few that performed well, with positive growth of slightly above 4%.

EUROWEEK: How does that compare with the situation in Korea this year?

Yoon-Kyung, Korea: Following the collapse of Lehman Brothers last year, Korea’s economic and financial conditions deteriorated and foreign liquidity conditions remained unfavourable up to the first quarter of this year, which we believe was largely the result of the market’s overreaction given the recent speedy recovery of the overall conditions in Korea. In the wake of the foreign liquidity crisis of the late 1990s, Korea underwent intensive corporate and financial sector restructuring and focused on stable management of the macro economy, which allowed us to emerge from the crisis with stronger fundamentals.

The recent financial crisis is not a matter confined to Korea but rather global in scale, and we believe the financial market — which overreacted due to misunderstanding and/or misperceptions about Korea — is now normalizing. That is why the recent speedy recovery of the market does not come as a surprise. As the OECD recently pointed out, Korea is exhibiting faster recovery than any other OECD member nation and is projected to post the steepest growth, all of which are reflective of the sound fundamentals of the Korean economy.

EUROWEEK: Asian sovereigns raised more in the international debt markets in 2009 than ever before. How have your funding needs changed this year and how has that affected your strategy?

Yoon-Kyung, Korea: Korea raised a significant amount of international debt in 2009, mostly through public offerings. This was not due to a change in funding needs; rather, it demonstrates that the capital market is recovering from excessive de-leveraging during the recent financial crisis. Globally, investors underinvested until earlier this year but increased their exposure in Korea reflecting the recovered confidence in Korea.

Waluyanto, Indonesia: We have met our bond issuance target for 2009 ahead of schedule. We raised more money in the bond market than usual this year because the government needed to finance a bigger budget deficit due to financing fiscal stimulus. It has affected our strategy of issuance with regards to the diversification of instruments and methods of issuing and selling bonds. In addition to regular dollar bond issuance in the international market, for instance, we also issued a Samurai bond and a global sukuk for the very first time. Then we decided to reduce our need to tap the market by taking the Contingent Financing Facility provided by the World Bank, ADB, Japan/JBIC, and Australia. This facility is basically for budget support when the government has difficulty in accessing the market as a source of funding. We also sold bonds and sukuk in the domestic market through reverse enquiry private placements, in addition to our regular auctions and bookbuildings.

Tan, Philippines: We had upward adjustments in our funding target, which gave us an opportunity to optimise our external borrowing. The original fiscal deficit programme [the amount of the deficit to be funded through borrowing] called for Ps40bn this year, but with the ensuing slowdown of the global economy, the growth of the Philippine economy was likewise adversely affected. The persistence of the slow economic growth resulted in substantial shortfalls in fiscal revenues against our programme, forcing Government to make several adjustments in its fiscal programme resulting to the current deficit target of Ps250bn.

We, however, prepared ourselves for windows of opportunity we knew would be showing up, particularly during the second half of the year. Like I said, there was deep liquidity out there and investors, with confidence now improving, were on the lookout for better returns which emerging credits, particularly sovereigns, offered.

EUROWEEK: What have been the main supply and demand drivers of the heavy sovereign issuance in 2009 and how do you see that continuing in 2010?

Pellicano, Credit Suisse: In addition to their usual funding needs, there were some budgetary pressures this year that also prompted governments to tap the international markets. In the case of Korea, tapping the global markets for a jumbo size benchmark was a confidence signaling transaction at a time when global confidence was still very fragile. I don’t think you’ll necessarily see a higher volume from Asian sovereign issuers in 2010 than in 2009. It is not certain, for instance that Korea will tap international markets this year, while some others, such as Vietnam may make a return.

Wade, RBS: Demand for Asian sovereigns has come from various forms of global liquidity-existing emergingmarket funds, new funds expanding into Asian debt as well as liquid local markets buying either with reserves or asset swaps. Supply has been a result of issuers taking advantage of lower spreads, yields as well as generous spreads back into local currencies. There is always a refinancing element as well.

Stoddard, BAML: From an issuer perspective, and this would apply to sovereigns as well as corporates, taking any concerns around near term financing and liquidity needs off the table was the top priority considering what we had come through. If you’re an issuer at the start of this year and you take a look at the world around you, and look at what happened before that, and you have a financing need that can be met in size, you’re going to do it. On the investor side, there was a massive flow of funds into fixed income as accounts started to reallocate cash, and Asian issuers benefited from the relative strong fundamentals of the region. With an expectation that funding levels will remain attractive into 2010, we will continue to see Asian sovereigns access the market.

Shahani, HSBC: Earlier in the year, the main driver was sovereign precautionary issuance on fear that the global financial crisis could get worse again. This early phase was followed by the desire to lock in lower yields and longer duration by sub-investment grade Asian sovereigns. So year-to-date issuance from Asia ex-Japan sovereign reached a record $13.7bn, nearly the combined value of the past three years.

Looking at the redemption profile, this is relatively low for the next four years. According to our estimation, it would be less than $2bn for 2010, approximately $5bn for 2011 and approximately $1bn for 2012, until a sharp rise to be seen in 2014 (approximately $9.5bn). We expect primary issuance from Asian sovereign space to drop to around $7bn range in 2010 and mainly out of high yield sovereign issuers, especially the Philippines.

Jones, Barclays Capital: If you look at the overall market context to begin with 2010 will be a busy year, with a lot of people looking to fund in the first six months of the year for two reasons: firstly, there is clearly going to be pressure on interest rates in the second half of next year; and secondly, the amount of new supply that has come into the credit markets and will continue to do so is going to result in some spread pressure — both within the region and globally. I think Asian sovereigns will be as active in 2010 if not more so.

EUROWEEK: What role will the international capital markets play in your funding plans next year? What are the advantages of international capital over your domestic market?

Waluyanto, Indonesia: The government policy of funding is to prioritise rupiah bond issuance in the domestic market and to establish international issuance as complementary to domestic issuance. The thinking behind this policy is to better manage the currency risk exposure and to support the development of an domestic investor base, which is crucial to strengthen and stabilise our domestic financial market.

By issuing in the international market we can also avoid creating a crowding-out in the domestic market, giving space for Indonesia corporates to tap the market. Investors knew the government was not going to flood the domestic market with a big supply of bonds. If this year the government fully depended on domestic financing, this could trigger a severe crisis in the market which could impact the deterioration of the balance sheets of the financial institutions who held the bonds. Further financial crisis could happen if foreign investors were also to pull out from Indonesia.

Lastly, by issuing bonds in the international market we support the strengthening of central bank reserves, helping the central bank to better manage the exchange rate.

Yoon-Kyung, Korea: Korea’s capital market and foreign exchange transactions have already undergone liberalization. Therefore, it does not make sense to consider the international and domestic markets separately as they inevitably are closely interrelated, and we hope that the international financial market will further stabilise in 2010 along these lines. Next year the Korean government will continue to access the international capital market to present a benchmark for Korean offerings and establish a closer relationship with investors. The timing of such action will be determined in light of circumstances around the international financial market.

Tan, Philippines: The current deficit target for next year is Ps233bn and the programme for international commercial borrowing is roughly $2bn. The financing raised this year included pre-funding next year’s budget by $1bn, so we only have $1bn left to source from the global market. However, if the actual deficit level further deteriorates against our programme, part of any additional funding requirement this year could be financed from proceeds of our pre-funding.

EUROWEEK: Will there be sufficient demand to absorb the supply?

Wade, RBS: The demand will be predicated on both liquidity supply(ie a function of China and the US keeping funding cheap.) As well as a continued belief that Asia is growing sustainably on its own and the desire of new funds to participate in the asset class.

Stoddard, BAML: Yes. The flows we see still show there is a significant amount of money going into fixed income and emerging market funds. Treasury yields are expected to remain relatively low for some time and investors will continue to look for some pick-up.

There has also been healthy demand for Asian corporates — we saw a natural progression this year in Asia from the sovereign and quasi-sovereign issuers, to the highest of the investment grade corporate credits, down the credit curve to high yield names. But I do not believe we should be concerned about a crowding-out effect — that demand for higher yielding assets will make it more difficult for sovereign credits to issue in size.

Jones, Barclays Capital: There will be demand. In the broader context, the emerging markets — which include a number of Asian sovereigns — have performed very well. Confidence has returned to a lot of those markets, most markedly in the Asian region. The overall shift in asset allocation from equities into credit markets is another driver of demand, and that is a big supporting technical factor for Asian sovereigns. We’re going to continue to see much more volatility in the equity market than in credit, so that trend will continue.

Pellicano, Credit Suisse: The major fundamental driver of demand has been low interest rates and that will remain a significant factor into the early part of 2010. There have been signals from some central banks that they may withdraw liquidity facilities or tighten monetary policy, but it seems clear the Fed is going to remain on hold for some period. At the same time, there is a huge amount invested in money market funds that is earning almost nothing, so there is still a big latent demand for high quality assets. Sovereigns will have no trouble at all.

Shahani, HSBC: There is always sufficient demand but it must be priced for the environment at that moment. If overall credit market is in stress, investors will demand a generic credit premium for credits in all buckets. If there are problems with a specific issuer, market forces are very efficient and demand an additional credit premium for those names compared with its peer group.

EUROWEEK: What shift have you noticed in the investor base for Asian issues?

Jones, Barclays Capital: The shift we’ve seen in the investor base for Asian issuers has been the return of US and European emerging market and more generic asset managers, and they will continue to drive the demand for Asian credit.

Pellicano, Credit Suisse: In the previous bull market Asian credit spreads tightened significantly, to the point that some international funds found it hard to justify holding Asian credits. The structured investment vehicles and European Libor players had squeezed a lot of money managers out. We have seen the demise of SIVs as a major force and fewer prop desks or hedge funds in new issues, while long-only money mangers have made a noticeable return. There is a better balance among investor types in deals and that has to be good for the long term.

Stoddard, BAML: The liquidity in Asia has clearly been more pronounced this year. However, the traditional dollar investor base will continue to be critical to achieve size and tenor.

EUROWEEK: Credit spreads have fallen sharply through the course of this year. Are you confident that front-loading, or locking in funding at the beginning of the year, is the right strategy?

Waluyanto, Indonesia: Yes, we still have confidence in it. It’s been a well-proven debt strategy especially to prevent the government from being ‘cornered’ by the market later in a fiscal year, and to anticipate any ‘unexpected market surprises’ that may happen anytime and which could disrupt our funding plan.

Pellicano, Credit Suisse: Hindsight is a wonderful thing. From the pure cost of funding point of view, it would have been better to wait until later in the year, but you can’t ignore the strategic benefits. Asian governments in 2009 ensured they had ample access to funding during a period of great uncertainty, and that was exactly the right thing to do.

Jones, Barclays Capital: There is one thing that everyone knows and that is that interest rates are going to go up. Any further marginal performance in credit spreads — and I believe that it will be marginal — will be quickly eroded by the speed at which interest rates rise in the second half of next year, so it still absolutely makes sense to look at funding early in the year.

Pellicano, Credit Suisse: Hindsight is a wonderful thing. From the pure cost of funding point of view, it would have been better to wait until later in the year, but you can’t ignore the strategic benefits. Asian governments in 2009 ensured they had ample access to funding during a period of great uncertainty, and that was exactly the right thing to do.

Shahani, HSBC: We do not believe that a front-loading strategy really works for the sovereign, unless it is a difficult election year, especially as key elections are held towards the middle or latter half of the year

Stoddard, BAML: Hindsight is 20-20 and nobody has a crystal ball; issuers need to evaluate the market in the context of current events and their funding requirements. Asian sovereigns and quasi-sovereigns that went at the beginning of 2009 made the right decision in the context of that market environment and the events that had transpired in 2008; they re-opened the market and set benchmarks for other issuers, and satisfied their own funding needs.

As it relates to 2010, it would certainly look to be an attractive market in which to "front-load" funding requirements. The question is how much can all-in funding costs improve from here?

Wade, RBS: It really depends on what an issuer needs to do. It is bad advice to fund for fundings sake (rather self-serving actually). However, if an issuer has a set funding plan for the year it will need some part of that done. It is prudent to take advantage of the current bullish situation in markets.

Tan, Philippines: It all depends on your view of what will happen over the course of the year. It’s a judgement call. If we feel that market conditions are right during the early part of the year, then we will consider issuing.

EUROWEEK: What steps are you taking to diversify your sources of funding?

Yoon-Kyung, Korea: Over the years, the Korean government has mostly issued dollar denominated global debt. But given the need to diversify sources of funding, we are also closely reviewing new currencies and new structures.

Waluyanto, Indonesia: We first try to identify the financing needs and the potential demand from investors or markets that we can further tap. We then try to establish the cost and risk target of the debt portfolio. So far, we have been very successful in diversifying our instruments by issuing various structures of bonds, short-term and long-term bonds, rupiah, dollar or yen denominated, and since 2008 we have issued sukuk in rupiah and dollars.

We have already sold dollar bonds and sukuk in regions such as Asia (including Japan), Europe, US, and the Middle East and we may further develop our investor base in other markets such as the euro bond market. But we have no specific timetable to do so yet.

Tan, Philippines: The dollar bond market will always be our anchor market, but we want to improve awareness of the Republic credit in other markets as well as re-establish presence in other currency zones such as the yen and euro markets. Islamic bonds are far off the centre of our radar screen although we continue to study it. Right now, we are still grappling with domestic regulatory issues concerning Islamic financing. We are placing more serious consideration in accessing the Samurai market for next year’s foreign funding needs.

Wade, RBS: For better rated issuers(i.e. Korea) I would recommend not to shy away from dollars as core, but also to start thinking about developing investors in key currencies such as the euro, sterling and Swiss Franc. These are great complementary currencies that can let an issuer reach investors who are not able to invest outside local parameters. I would also advise a sovereign that it is not always necessary to count the last basis point when looking at these... A sovereign can actually help other issuers in their country lower funding by creating a sovereign benchmark. It has to be viewed holistically.

EUROWEEK: Is there any demand for currencies other than US dollars, or newer structures such as Islamic bonds?

Shahani, HSBC: A number of Asian issuers have shown increased interest in the sukuk bond market. Indonesia is looking to sell a sukuk bond next year and Thailand will allow local issuers to issue Islamic bonds as early as 1Q10. The sukuk market has grown at a very fast pace in the past few years. According to the HSBC sukuk bond index, market capital has grown over seven times since the end of 2004, compared with the Asian Dollar Bond Index (ADBI) market capital growing less than 80% during the same period. We also see interest in international guaranteed deals such as the Philippines looking for a Japan Bank for International Cooperation (JBIC) guaranteed Japanese yen-denominated issuance targeting for next year.

Jones, Barclays Capital: The dollar market remains the most liquid and the most reliable, but there will be selective opportunities in euros. The yen market is another one that could be open on a selective basis: the JBIC-guaranteed structures that we’ve been seeing recently in Japan are an interesting structural development. New structures such as Islamic bonds are always something that should be on people’s lists of options, as are other local currencies that have been presenting some opportunities for sovereign borrowers, such as Swiss francs or Australian dollars.

Pellicano, Credit Suisse: Governments should keep an open mind as to other currencies and structures if market developments warrant it. The global bond route has been tried and tested, and is set to remain at the core of an international funding strategy. In terms of ease of access and size then clearly the dollar market is dominant. Just look at Qatar, which raised $7bn in a single day in November.

EUROWEEK: In a period of loose monetary policy, rising inflation is a key concern for bond investors. Have you considered an inflation-linked bond? If not, why not?

Waluyanto, Indonesia: We have no plan to issue inflation-linked bonds in the near future because we still have to prioritise the development of markets of the bonds and sukuk that have already been issued. Learning from other countries’ experiences, the markets for the linkers are still small and less liquid. Besides, Indonesia has only just begun to establish a story of a relatively better-managed inflation environment. I believe once an ideal policy-coordination between the government and the central bank is fully achieved, and the domestic bond market is deep, active and liquid, the linker will be one of our instruments.

Tan, Philippines: We have received proposals way back from banks to issue inflation-linked bonds based on domestic inflation. Nonetheless, there is no plan to pursue it although we will continue to study it for potential issuance when global and domestic economic conditions, including commodity markets, show signs of stability for the long term.

EUROWEEK: Is there any call for this product in Asia?

Jones, Barclays Capital: If you look at the development of the linker market in the US, Europe and places like Australia, the demand for the product is clearly there. Historically it’s been a feature of more developed markets, but investors in developed and developing markets face very similar challenges around inflation and the requirement to protect cashflows from being eroded by inflation. Industries such as utilities, for instance, which naturally have an inflation-linked cashflow, could be interested in issuing bonds that meet the requirement of asset managers inside and outside the region.

To get an inflation-linked bond market working, however, you have to have an inflation-linked swap market working as well. Bond markets and swap markets are intimately linked, and the development of those markets has to be contemporaneous.

Pellicano, Credit Suisse: Inflation-linked deals might make sense as investments for pension funds or insurance companies, but it is not always such a straightforward argument for issuers. Compounding real rates are a very powerful force, and capital-indexed bonds appreciate above inflation, raising the question of refinancing risk in the future. That may make sense when notional costs of funding are very high, but rates today are very low and attractive on a long run basis.

EUROWEEK: Asian financial integration is back on the agenda as a way of protecting the region from future crises in the dollar markets. Do you believe a regional bond market is a good idea, and do you see any progress towards that goal?

Tan, Philippines: Definitely. The ASEAN economies and regional partner economies namely China, Japan and Korea, are very supportive of integrating the regional financial markets. These countries are undertaking co-operative endeavours to develop and integrate the regional capital markets through efforts towards harmonising the various regulatory and tax regimes and adopting common standards of practices and processes. These objectives are being pursued cognisant of specific country circumstances, adopting the gradual approach when warranted and committing realistic timeframes.

Yoon-Kyung, Korea: A regional bond market is a very good idea. Most East Asian nations have current account surpluses and the region’s foreign reserves amount to $4tr in total. However, investments mostly go to offshore regions because of the lack of intra-regional investment destinations. This kind of offshore investment has been pointed out as the main culprit of global imbalance. Therefore, it is important to channel the funds to be invested intra-regionally to ease global imbalances and at the same time leverage them for intra-regional economic development. To create a virtuous cycle where abundant funds within the region are invested regionally, ASEAN+3 nations have been making concerted efforts to embark on the Asian Bond Markets Initiative (ABMI). In addition, the initiatives include the Credit Guarantee and Investment Facility (CGIF) and the Regional Settlement Intermediary (RSI) aimed at building the platform for the development of the bond market.

Jones, Barclays Capital: The development of local capital markets is imperative for the further development of Asia. In 2008 and the early part of 2009, the local markets did support credits when they couldn’t access the international markets, and some of the markets that have been traditionally not been taken seriously are growing very fast. The growth of the renminbi corporate market, for instance, has been just astounding, as you’d expect for a country of China’s size coupled with the amount of funding that is required. Similarly, you’d expect the rupee bond market to develop further, as with Indonesia and Singapore, where there’s a dearth of supply but there is demand.

The localisation of markets has become another big theme, but for any of the Asian markets to take off and become attractive for international borrowers there has to be some harmonisation of regulation to encourage banks and market participants to become more interested in providing secondary market liquidity.

Waluyanto, Indonesia: Yes, in principle it is a good idea. We have been actively participating in the Asian Bond Markets Initiative (ABMI), which aims to develop efficient and liquid bond markets in Asia, enabling better use of Asian savings for Asian investments. Much progress has been made, at least we all agree on the common issues that needs to be addressed together among member countries.

EUROWEEK: Are credit ratings more or less important today than they were before the crisis?

Waluyanto, Indonesia: Credit ratings remain relevant and important even today, especially for emerging market economies such as Indonesia, given that we still have a lot of information to disclose and lots of good stories to tell to the whole world.

We expect that more rating upgrades will happen in one or two years’ time to reach investment grades from all agencies. I see some progress given that Moody’s just upgraded our credit rating and S&P recently revised the rating outlook from stable to positive. We are now about two (Moody’s, Fitch) or three (S&P) notches below investment grade. Our view is that Indonesia is now being under-rated.

Yoon-Kyung, Korea: Sovereign ratings should represent the economic situation and outlook of a nation in a fair and objective manner. Korea remains sound in terms of our fiscal status, foreign reserves and macro economy, and we hope that our sovereign rating will be reflective of our strong fundamentals.

Tan, Philippines: Rating agencies continue to have their value and relevance. We closely engage with them as part of our overall investor relations programme. We accommodate their analysts when they come to the Philippines, update them on local developments and actions we are taking to address domestic and external problems, and provide them with latest economic data. But we also, of course, engage directly with our investor public, network of partner global banks as well as official multilateral and bilateral creditors. Rating agencies are an important part of our investor relations constituency although they are, of late, being subjected to a lot of criticism.

Shahani, HSBC: Credit ratings remain an important feature of the market place. It will remain a key factor for real money and other investors before making any investment decision. The ratings provide an unbiased opinion from a neutral source about the issuer creditworthiness with timely updates. Investor disappointment relates to the speed of credit rating agency responses but can improve.

Jones, Barclays Capital: Notwithstanding what the rating agencies have been through, there are a lot of funds with investment criteria that are based on ratings, so their influence on markets will continue.

Pellicano, Credit Suisse: Agreed. As maligned as they have been, ratings remain important. Many investors still have a requirement that issues be rated. Unrated issues have noticeably less broad-based investor support and typically rely on a ‘hometown’ bid to drive the transaction.

Stoddard, BAML: Ratings are important. However investors are clearly digging in more and doing their homework, which is reflected in spread differentials among similarly rated credits. Events continue to teach us — the most recent being Dubai and the potential risks associated with relying upon implicit state guarantees.

EUROWEEK: What is the biggest challenge the market will face in 2010?

Waluyanto, Indonesia: The biggest challenge will be deepening the domestic bond market because this could make a significant contribution to a more stable, efficient and resilient financial market in Indonesia. We need well co-ordinated efforts from the stakeholders — the government, central bank, capital market regulators and other market players.

Yoon-Kyung, Korea: Korea is highly sensitive to conditions in the international financial market given our liberalised capital and foreign exchange markets and high external dependency. As such, it is very important to Korea that the international financial market stabilises and advanced economies (including the US) recover. In addition, the recent financial crisis once again highlighted the importance of international co-operation — a global crisis requires a global solution.

In this regard, we hope that co-operation at the global level, led by the G20, will help stabilise the international financial market in 2010. As 2010 G20 chair, Korea will do its utmost to advance the work of enhancing the soundness of the global financial market, including measures to help emerging/developing economies address sudden, volatile flows of capital.

Tan, Philippines: The major challenges for us remain the maintenance of sound management of the macro-economy in general, and the successful return to fiscal consolidation in particular. Many countries have taken strong actions to stimulate their economies to minimise the impact of the global slowdown.

These are positive measures given the recent global conditions but can potentially be dangerous if these lead to uncontrolled deficit and debt spiral. We remain vigilant of developments in the global economy and commodity markets, and ready to provide the best response within our means to negative events and conditions that may emerge.

Jones, Barclays Capital: The withdrawal of the liquidity facilities put in place by central banks. That’s more a global issue than a regional one, but clearly if it puts pressure on the financial system again in the US and Europe then it’s undoubtedly going to affect Asia.

We are clearly not out of the woods just yet. A sovereign or corporate default will be a set back for the market — undermining confidence and dragging markets lower.

Pellicano, Credit Suisse: At some point in 2010 the low rate and high liquidity environment that has been concocted by central banks around the world will start to be unwound, and as that occurs I would expect volatility to pick up.

Absolute underlying government bond yields will likely move up, but the bigger impact is likely to be on credit spreads as volatility picks up as central banks make that policy switch.

Stoddard, BAML: What keeps people awake at night is the notion of a double-dip, unforeseen credit events. It doesn’t feel like entirely smooth sailing from here. Which brings me back to the question about front-loading — if current market conditions continue into early 2010, issuers will likely take the opportunity to satisfy their funding objectives.

  • 15 Dec 2009

GlobalCapital European securitization league table

Rank Lead Manager/Arranger Total Volume $m No. of Deals Share % by Volume
1 Bank of America Merrill Lynch (BAML) 7,026 25 11.95
2 Citi 6,449 21 10.96
3 BNP Paribas 5,093 18 8.66
4 Barclays 4,040 11 6.87
5 Lloyds Bank 3,615 14 6.15

Bookrunners of Global Structured Finance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 120,318.45 348 12.72%
2 Bank of America Merrill Lynch 104,269.08 299 11.02%
3 Wells Fargo Securities 88,761.07 266 9.38%
4 JPMorgan 69,240.12 209 7.32%
5 Credit Suisse 51,560.77 157 5.45%