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AsiaAsia CommentGC Asia View

Taiwanese bond market: a win-win for all

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A slew of international financial institutions have recently found success in selling dollar notes in the Taiwanese domestic bond market, with ABN Amro breaking new ground last week with a tier two deal. Taiwan’s local investors have proved resilient during tough times and with the market looking increasingly attractive, there are plenty of opportunities for FIG issuers.

Last week ABN Amro broke new ground with a bond it sold into Taiwan. The trade was the first to be sold after the country’s regulators changed rules in January to allow foreign banks to sell tier two debt as a Formosa bond.

International names are of course no strangers to Taiwan’s market. For instance, Asia ex-Japan dollar debt issuance has recorded a 40% year-on-year decline with only $23.4bn raised so far in 2016. But dollar fundraising in onshore Taiwan has outperformed last year’s figures. Year-to-date, international issuers have come to Taiwan to bag around $8.8bn from 26 deals, exceeding $8.6bn from 19 transactions in the same period last year, according to Dealogic.

This month already, financials including JP Morgan, Société Générale and UBS have sold dollar bonds in onshore Taiwan. The country holds plenty of appeal — not just for bank capital transactions but even just straight bonds from financial institutions.

For starters, the Taiwanese market provides issuers with means to save costs. For example, ABN Amro managed to save a couple of basis points with its Taiwan-focused transaction as the Formosa designation meant it counts as domestic debt for Taiwanese institutional investors, allowing them to buy more of it.

Cost is without a doubt a big factor for banks heading to Taiwan. But what the country also gives issuers is access to an investor base that is on the hunt for dollar assets. In the past, the Taiwan onshore market was dominated by life insurance companies that preferred long-dated paper — usually around 10 to 30 years — and a lack of variety and depth of liquidity forced some issuers to stay away from Taiwan.

But the dynamics have now changed. Taiwanese bank treasuries are becoming increasingly active in attracting foreign lenders to the country, providing borrowers more options to choose from in terms of format and tenor.

It’s not all good just for issuers. Investors too get a pretty good deal in the process, especially as they are cash rich and eager to park their money in dollar names.

The dim sum bonds, of which Taiwanese investors used to be one of the largest buyers, has all but closed. With the Chinese renminbi falling nearly 5% against the dollar in 2015 and widely expected to fall further this year, Taiwan’s investors have for now weaned themselves off renminbi-denominated assets and are leaning towards dollars.

By structuring their fundraisings for the onshore market, financial institutions are guaranteed robust interest, particularly from Taiwanese life insurers. There is a regulatory limit to how much foreign debt Taiwanese lifers are able to buy, but a deal sold exclusively onshore bypasses that rule while still allowing investors to gain exposure to a foreign credit.

Seeking out different markets as a way to diversify is never a bad thing — especially if investors too are eager to find new credits to put their money in. The onshore Taiwan market is a case in point and offers a win-win situation for both issuers and investors.