Sorry CBs, it's just not your year
On the surface, 2014 looked to have the makings of a vintage year for Asia’s equity-linked market. But judged against bankers’ predictions, it seems to be heading for another disappointment. For a year that promised so much, activity has been lumpy and there’s been plenty to derail the market along the way.
Make no mistake about it, 2014 has been an improvement over the past few years for Asia’s equity-linked activity. Asian issuers, excluding China and Japan listed companies, have raised a total of $10bn so far, a 58.7% leap over the same period of time last year, according to Dealogic. Looking further back, the contrast is even bigger. In this period of 2012 there was volume of just $4.4bn.
So even though the numbers tell of a market on the up, that improvement is off a very low base. Equity-linked volumes took a dramatic hit in 2012 thanks to near-zero US interest rates, which prompted issuers to seek better value in the straight debt market instead.
The pieces only started coming back together for the equity-linked world in the second half of 2013, when talk of the tapering of quantitative easing prompted CB specialists to proclaim that 2014 was going to be the year for a full-blown revival and usher the market back to the glory days of 2010, when volumes reached $17bn.
And it looked, briefly, as if the super bulls’ predictions were coming true in January, when an early spree saw eight issuers raised a combined $1.92bn. Market observers were particularly excited about the return of China Overseas Land and Investment (Coli), which printed a $750m 2021 zero coupon bullet, and CP Foods Holdings’ $290m exchangeable bond – a debut from Thailand.
But that proved to be a false dawn as an earlier than usual Chinese New Year Holiday broke the momentum for Chinese issuers, while months of protests in Thailand (followed by a military coup) dismissed any hopes of further activity from the southeast Asian country.
With so many factors already working against the asset class, equity-linked regular Khazanah Nasional then inexplicably added to the problems by pulling a $750m exchangeable sukuk even though it had a fully subscribed book. This was damaging because Khazanah is one of the biggest repeat issuers in the Asia equity-linked market.
Things were not looking any better for Asian issuers listed in the US thanks to a China tech fire sale in April. Mainland internet companies had previously been expected to lead the 2014 comeback, having performed admirably in the second half of 2013 by raising a combined $2bn.
Internet security provider Qihoo 360 did pull one back for China tech by completing a $900m dual tranche convertible bond at the start of August – the largest from an Asian ex-Japan issuer in four years.
But its tech peers are unlikely to follow in its footsteps anytime soon. The prospect of going head to head with a $15bn-$20bn Alibaba IPO is neither appealing nor feasible. That’s because a lot of US tech specialist accounts that will be keeping their powder dry for that Goliath listing are the same funds that invest in China tech convertible bonds.
And even once Alibaba’s IPO is done and dusted, estimated to be sometime in September or October, it remains to be seen whether the appetite is still there to digest other transactions after so much liquidity has been drained from the market.
With no clear issuance window for borrowers to come and no impending macro-economic changes of the kind that might jolt investor interest, the equity-linked market is clearly in need of some fresh impetus heading into the end of the year.
An upward revision of interest rates is clearly the missing ingredient here, but with the first of those not widely expected until 2015, CB specialists will have to wait that little bit longer for their glory to return.