Bankers’ confidence in Asia’s local currency debt markets is growing – but they remain a poor substitute for international sources of funds that remain largely closed to the region’s issuers.
International capital has only been available for high-rated or government-linked companies in Asia since the start of 2009. ADB attendees arriving in Bali this weekend believe local currency bonds can fill some, but not all, of the gap.
Ray Ferguson, Standard Chartered’s chief executive for Southeast Asia, told Emerging Markets in an interview in Bali: “Most of Asia’s local currency markets have continued to operate. The term ‘green shoots’ is overused, but they are starting to unfreeze a bit.”
Florian Schmidt, head of debt capital markets for Asia at ING, said that the only proven source of new funds so far is the Philippines. “Of the various domestic bond markets in the region only the peso market has been able to pick up some of the slack”, he said. “Retail investors are driving these corporate deals, and to a bigger extent bank capital issues.”
San Miguel Brewery, a unit of a Philippines conglomerate, showed the extent of demand for Asian currency debt at the end of March when it sold bonds worth Ps38.8 billion ($800 millio) in the biggest single deal in the Philippines market.
San Miguel had been planning to raise part of that total in the international markets but demand for the peso notes came as a surprise.
Standard Chartered’s Ferguson said: “When we started talking about the deal at the end of last year we were all a bit nervous about the size, but it was a tremendous success.”
ING’s Schmidt said that many of the bonds sold by San Miguel ended up with retail buyers, having being distributed through the branch networks of the Philippines banks that helped underwrite the deal. International investors, who had flocked to appreciating Asian currencies before the 2008 crash, remain absent.
Brian Baker, president for Asia at fund manager Pimco, told Emerging Markets: “We are still investing in local currency bonds, but given the pullback in risk taking by institutional investors we have put off launching any Asia-specific bond fund.”
Pimco launched a new Asian fund in mid-2008 targeting inflation-protected bonds, commodities and currencies as a play on rising inflation, but that project is now “on the shelf” as a result of the crisis, Baker said.
On the other hand, the encouraging response from local investors to bond issues indicates that Asia may be weathering the financial turmoil better than other regions. Singapore shopping centre operator Jurong Point Realty sold mortgage-backed bonds at the end of April in the first such deal for almost two years. The Philippines Metropolitan Bank issued a Ps4.5 billion bond last week.