Asia DCM finally picks up the pace in November
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Asia DCM finally picks up the pace in November

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The Asia ex-Japan bond market is set for a busy few weeks as issuers decide between pushing out deals now and postponing their fundraisings until 2016. Sovereigns and bank capital trades are part of the pipeline but with Thanksgiving holiday and a potential rate rise looming, timing has become critical, writes Narae Kim.

After being knocked off course by a summer rout in equities and a sharp currency devaluation in China, the Asian dollar bond market has finally begun to pick up. So far this month, 19 bonds have priced worth $9.5bn. Although the figure is two-thirds lower than the same period in 2014, it’s a jump from October this year when the market saw 13 issuers raising $5.9bn, according to Dealogic. Issuers this week included SP PowerAssets, Stats ChipPac and TUS Holdings.  

“The deals we’re bringing out now and we’re seeing in the market are all those that were scheduled for this year to launch but we did not manage to execute earlier because of all the volatility,” said a head of debt syndicate.

With a pent-up pipeline of transactions to push out, bankers are expecting plenty of deals to rapidly hit the market. But the dynamics of conversations with potential issuers has changed recently owing to two factors: the upcoming Thanksgiving holiday that falls on November 26 and the meeting of the Federal Reserve in mid-December.

According to a treasury official at an Asian bank, many investors and issuers will be looking at post-Thanksgiving data on US sales for a sign of the strength of the economy. He added that sales numbers provide a genuine indicator of consumer spending and sentiment, which in turn shapes investors’ view on the economy and market.

“I think it makes sense for issuers to get deals out of the way before Thanksgiving,” he said. “We have Thanksgiving every year, but given how volatile the market has been this year, I’m particularly interested in seeing how the post-Thanksgiving data would look like.”

Among deals expected to launch soon include China Construction Bank and Bank of East Asia, which are looking for Basel III additional tier one trades. The latter for instance has set the minimum coupon of its upcoming additional tier one issue at 5.5%, and bookbuilding is scheduled to start once its exchange and tender offer for a $500m 8.55% PNC10 hybrid tier one bond closes on November 24.

To do or not to do?

Sovereigns too are pondering the best timing for their own transactions, say bankers. For example, Vietnam is understood to have sent out a request for proposals for a possible offshore bond. But its finance minister, Dinh Tien Dung, reportedly addressed the National Assembly in Hanoi on November 17 and said that the sovereign has postponed its plans until next year due to unfavourable funding conditions.

Another reason timing has become critical is down to the Federal Reserve meeting on December 16-17, where it is widely expected to announce the first rate rise in a decade.

Due to the expectation of rising yields, some issuers are understood to be bringing forward next year’s funding ahead of the December FOMC meeting. Others, meanwhile, are looking to postpone their debt plans until next year when they hope markets will be calmer. But the decision-making is relatively tricky, say bankers.

“Borrowers tend to have a fixed funding plan that needs to get approved and signed off so any decision to pre-fund would have to be made way ahead of time,” the head of debt syndicate said.

Issuers too acknowledge that changes in funding plans, especially for sovereign or quasi-government entities, are not common.

“Treasurers and bankers who advise them are experienced enough and therefore not swayed or sensitive to a rate hike that’s been in the news for a while,” said the treasury official. “Sovereigns and quasi-sovereigns in Asia, unlike their counterparts in Latin America, aren’t so flexible in terms of funding plans.”

Sticking to plans

For instance, South Korea is still on track for selling the first renminbi-denominated bond by a sovereign in December. According to a banker close to the trade, the sovereign was determined to become the first to issue a Panda — or onshore renminbi — bond.

He added that as there’s no precedent, a lot of work needs to be done internally, including finding out what legislations and rules should be applied to the trade.

“But no matter what, the sovereign is very keen on sticking to its December 2015 timeline,” the banker said.

DCM bankers are largely advising their clients to issue by early December if possible due to expectations of a fair bit of noise because of the FOMC.

But the rate hike, if it takes place, won’t be a big deal anyway as it’s been in the market for such a long time.

“Everyone’s talking about a rate hike, but it’s not actually a game changer for the bond market because whatever the Fed does, it’s going to be gradual,” said a head of syndicate, adding that no hike spells more trouble than a raise. 

“No hike is rather a problem because then we’ll have all that talk about when they’re going to hike again and again, which brings about needless volatility.”