Mizuho heads to Thailand to test first ADB cross-border bond
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Mizuho heads to Thailand to test first ADB cross-border bond


Japanese lender Mizuho is leading the way for an Asian Development Bank (ADB) initiative that allows borrowers to issue local currency bonds in most jurisdictions in Asia using a uniform set of documentation. While many details still need to be ironed out, market observers are confident this could herald an increase in cross-border issuance within the region, writes Christina Khouri.

The Asean+3 Multi-Currency Bond Issuance Framework (AMBIF) initiative provides a standardised platform through which issuers can issue local currency bonds in any of the participating bond markets.

For example, with AMBIF’s Single Submission Form (SSF) an issuer can use one document to provide all market authorities in the region with the required information to issue a bond.

The framework has already been implemented in six markets — Hong Kong, Japan, Philippines, Thailand, Malaysia and Singapore — and the first issuance will be in Thailand, with Mizuho announcing on April 30 that it had received approval from the country’s finance ministry for an up-to Bt3.2bn ($90m) bond.

But the issue still needs the green light from the Thai Securities Exchange Commission, said Satoru Yamadera, ADB’s lead on AMBIF and principal financial sector specialist in the bank’s regional and sustainable development department. The Mizuho deal will allow AMBIF to test the SSF.

“With the Mizuho issue we will be checking the SSF’s usability, and with regulators that nothing has been left out and that the form can be accepted by all authorities,” he said.

Filling out an SSF is the first step towards issuing a bond under the AMBIF, and issuers are required to file consolidated financial statements such as balance sheets, income statements, cash flow statements and independent auditor reports.

Mizuho is the only issuer to have been approved to use AMBIF to date, said Yamadera, although the framework has had inquiries from financial institutions and multinational corporations.

Mizuho chose to issue in Thailand, although it could have chosen any one of the AMBIF-ready markets. The Japanese bank will use the proceeds of the issuance to support its lending to Japanese and Thai companies through its Thai branches, it said in its announcement.

Increasing cross-border activity

As a company with operations in Thailand and a consistent need for local currency, Mizuho is an obvious choice for a Thai baht issue. But for the same reason, some said AMBIF was unlikely to prompt an increase in cross-border bond issuance due to the lack of issuers with the same international profile.

A source close to the ADB said the programme would probably only attract non-banking financial institutions, or issuers who need constant local currency funding but do not have access to deposits. The potential for corporates is quite limited.

“If corporates have operations in local currencies, they may be willing to take advantage of the programme,” said the source. “But unless those corporates need constant funding needs in local currencies, going to the capital markets may be cumbersome for them.”

Others pointed out that similar initiatives aimed at promoting cross-border issuance in the region have had a poor track record, which does not bode well for AMBIF.

For example, so far only six companies have used the Credit Guarantee & Investment Facility (CGIF), which provides credit guarantees to corporates looking to issue local currency bonds within the region. CGIF is also an ADB initiative and has been around since 2010.

But others remained optimistic, saying that boosting cross-border bond issuance would take time.

“As Asean moves closer to economic integration, we will see more companies and multinationals in Asean+3 spread their operations across borders, and we will see more Chinese, Japanese and Korean companies move into the Asean region,” said Yamadera. “It’s just a matter of time.”

Promod Dass, deputy CEO of Malaysia’s RAM Rating Services also agreed that the circumstances for more intra-regional issuance was still in the making.

“For initiatives like this you need to have a longer term perspective,” he said. “Asean has a lot of priorities, while it will definitely be nice to have a deeper and more connected capital markets, there are also plenty of other moving parts in play.”

One such part that could prove to be an obstacle for AMBIF’s efforts is the region’s investor base. “One challenge we face is that corporate bond markets in Asean are not very well developed yet, and there is not much intra-regional investment,” said Yamadera. “Investors need clear disclosure — which is not always available in the region’s private placement markets.”

Expanding investor base

While the weak investor base is a challenge for AMBIF, there is still hope that the programme itself could turn things around. Because the SSF requires clear disclosures as well as documents to be provided in English, it will allow more investors the ability to get a clearer understanding of issuers, according to Yamadera.

“We will reduce the operational costs to investors and create more opportunities for investors to be more familiar with issuers, and increase their interest in investing in them,” he added.

This is the result Thailand is hoping for with the pilot issue.

“Getting the full amount of the [Mizuho] deal taken by investors should not be a problem,” said a source at Thailand’s Ministry of Finance.

“But we are also encouraging Mizuho to bring in more foreign investors to the deal and to roadshow in multiple countries, because most foreign investors who invest in Thai baht invest in Thai government bonds and we hope that this could help us bring in more sophisticated investors to the market.”

The source added that the Ministry of Finance had been actively promoting the AMBIF programme to potential issuers, letting them know that the Thai market was AMBIF-ready.