Hong Kong dollar issuance has taken off in the second and third quarters of this year. Over $6.67 billion-worth of Hong Kong dollar has been traded off 373 private trades in 2001 to date. Last year saw just 208 private placement trades for the same period, amounting to $5.40 billion-worth. This trend is set to continue as the last quarter of 2001 is still going strong. The Asian crisis in 1997 first spurred the move into Hong Kong dollar private placements. A dealer from one of the top bookrunners for the currency in 2001 explains why. She says: "There have been limited investment opportunities since the Asian crisis in 1997 because of the huge drop in mortgage lending in Asia. Investors are looking for opportunities elsewhere and one place they are looking is in MTNs." HSBC holds the number one position in the Hong Kong dollar sector and has been a market leader since the first Hong Kong dollar trade in 1997. Fergus Kiely, head of Euro-MTNs at HSBC, gives other reasons for the growth in the market and sees it as part of the global economic move out of the volatile equity markets. Kiely says: "People are switching out of equity and want to get more involved in fixed income. This trend is positive for the MTN market as a whole and it includes the Hong Kong market." JPMorgan has managed 25 private Hong Kong dollar trades this year and comes second in the Hong Kong dollar league table (see page 17). And Rob Nankivell, head of Euro-MTNs at the bank says: "Growth is mainly down to the good work by people who cover the market in that part of the world. Maybe another factor is that some Southeast Asian investors are beginning to put less value on having liquidity in all components of their portfolios. In the past some investors were paying a high price for liquidity they didn't really need when looking at their overall situation and needs." But there is potential for the market to grow and room for diversification in credit, tenors and structures. Investors are sticking to the medium term with over 91% of all Hong Kong dollar private placements in 2001 done between one and seven years, according to MTNWare. One of the sector's top bookrunners says: "Asian investors tend to be short-sighted when it comes to maturity, especially because there is more liquidity at the short end." But the sector is investor driven and the strong demand in the one- to five-year sector is satisfying issuer funding needs for now. Bank of Scotland Treasury Services has issued 42 private notes in the sector together with its subsidiary BOS International (Australia) and it tops an private placement issuer league table for 2001. Richard Shrimpton, senior director, capital markets at Bank of Scotland Treasury Services, says they have no need to look further than the short term for their funding needs. He says: "There is high demand for our name in the shorter end so we have no reason to pay up for longer dated paper." But Nankivell, at JPMorgan, would like to see investors venture beyond the safe haven of mid-term maturities for single-A bank names. He says: "We would like to see investors start to look down the credit curve, and to the corporate sector. We believe that the potential is there." Kiely, at HSBC, also believes that diversifying into corporate issuers is the way forward for Hong Kong dollar. But he also emphasizes that it is vital for issuers to go out and meet investors in Asia for this to happen. He says: "There will be opportunities for household corporate names in this sector. The market will develop with single-As, in line with the market as a whole. But for that to happen single-A credits need to come to Asia to make investor presentations." If issuers roadshow more often in Southeast Asia then the currency may have a steady future. Shrimpton, at Bank of Scotland Treasury Services, is sure the currency will stay buoyant. He says: "Issuers are looking to diversify their investor base and dealers want to branch out as well. It is a good way of spreading risk, so I'm sure it will continue to be a strong sector."
November 02, 2001
