The many diverse tremors rippling through the market this year have created hurdles for Asia’s bond issuers. The open-and-close ‘drive by’ deals that were so easily done mere months ago are nearly impossible now as geopolitical headlines, shifting monetary policy and understandable fatigue create volatility.
But as borrowers receive a reality check on what they can and cannot do, the skills of bankers and issuers to finesse investor relationships to seal a deal have become even more valuable.
Throughout much of 2017, the region’s borrowers were able to hit the bond market with little to no notice and close successful deals. Those who did opt for roadshows often made a quick round and came out with a deal the day after. How times have changed.
Last week, deals that were in the market had been promoted in March. Issuers that were on the road in April probably won't come to market for several more weeks. The official investor meetings are proving to be just the start of conversations about deal tenors, prices and terms, as issuers continue to assuage investors and navigate secondary price volatility.
Issuers frequently alter proposed deals to fall in line better with investor appetite, but these changes have become even more noticeable recently. Issuers and banks have been using roadshows to go back and forth with investors, reflecting on suggestions and making big changes to their funding plans, rather than just introducing investors to a deal and launching it.
Indonesian property company Bumi Serpong Damai (BSD), for instance, wanted to sell a seven year non-call four bond, but investors pushed back on the high yield issuer, questioning the lengthy tenor. More than a month after the roadshow, BSD launched a three year non-call two bond instead. Bankers on the deal admit BSD would not have been successful had it tried to sell a seven year tenor.
Likewise, BOC Aviation first pitched a 5.5 year fixed rate note to investors, only to find them more interested in a shorter tenor and a floating rate. The company ended up selling a three year floating rate bond last week.
Even for the most established issuers, roadshows are important for relationship management. Chinese technology company Huawei, for instance, found itself in a predicament last week when news of a US investigation into the company prompted it to delay a euro bond sale that was in the market and ready to be priced. While the situation was less than ideal, Huawei’s decision to pull its bond was a smart move and will help it maintain its investor relationships.
Some accounts were undoubtedly annoyed at the last minute change, but Huawei’s roadshow the week before meant it has started conversations with investors about the pressures Chinese technology companies face in the US. Huawei will be able to leverage its initial conversations to meet investors again in the near future. The foundation of a deal has been laid, and Huawei may be better positioned to return to the market later this year, should it choose to do so.
Debut, or less frequent, issuers should certainly follow suit. Investor relationships are increasingly important to make deals happen, as the market is unlikely to get easier any time soon.
Savvy banks will be prepared to use roadshows as springboards for transactions. But those with true skills will go one step further.