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Tuesday, 25 June 2019

Asian Issuers: Timing it right

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US figure skater Michelle Kwan performs during the opening of the ice rink at the Marina Bay Sands casino in Singapore.

Source: REUTERS/Vivek Prakash

US figure skater Michelle Kwan performs during the opening of the ice rink at the Marina Bay Sands casino in Singapore.

This year’s Asian Issuers Special Report showcases a group of issuers that each demonstrated an ability to adapt to changing market conditions.

Asia’s capital markets enjoyed another strong year, but companies needed to be nimble to take full advantage. Across every asset class, shifting fund flows and risk appetite complicated efforts to capture the best terms, and many slow movers missed out on their best opportunities.

Loan markets struggled to compete with bonds for most of the first half of the year, but the resulting pent-up bank liquidity boosted demand for a jumbo financing from Alibaba Group. After US Treasuries spiked over the summer, floating-rate structures came back to the fore, and Reliance Industries deftly tapped into a rebounding market with a US$1.75bn two-tranche offering.

Sales of US dollar bonds raced away in the first half, with record volumes over the first five months. Riskier borrowers from the crowded Chinese property sector, with Kaisa Group among them, were welcomed with open arms amid a surge in demand for high-yield assets, while the smartest frequent issuers were able to lock in ultra-low coupons at impressive sizes, as CNOOC demonstrated with its US$4bn blockbuster in May.

Bond markets dried up, however, in late May and companies like PTTEP revised their funding plans after it became clear that demand for high-beta products, such as corporate perpetual bonds, had evaporated.

Local currency liquidity presented opportunities for well-known issuers, such as National Australia Bank, to diversify away from the US dollar, with issues in New Zealand and even the offshore renminbi market providing alternative sources of funding.

Doubtless, financings were more difficult once the threat of an end to US quantitative easing began to hang over markets, but the summer’s volatility presented opportunities of its own. Singapore’s CapitaLand found an impressive pool of demand for its latest convertible bond, completing a liability-management exercise at the same time.

Equity raisings were even more complicated. South-East Asian markets were among the outperformers in early 2013, as evident in April’s record-breaking US$912m share offering in the Philippines from LT Group, which transformed its corporate structure and added liquidity to its free float. LT’s timing proved perfect, coming shortly before emerging-market investors turned bearish at the first hint of US tapering and countless issues were either scaled back or put on hold altogether.

Japanese capital flows – another of the year’s driving themes – underpinned the Singapore listing of Croesus Retail, the first overseas IPO of an entirely Japanese property portfolio. The deal proved far from straightforward, but rampant demand for Japanese exposure in the early stages of Prime Minister Shinzo Abe’s reform programme vindicated the unusual strategy.

The final quarter of 2013 is already emerging as a volatile one, building on the unstable foundations of a US Government shutdown in mid-October. Although any tapering of US monetary easing appears to have been delayed, the long-term rates outlook remains unchanged. Asia will have to cope with shifting fund flows in the months to come.

At another turbulent time for the world’s financing markets, flexibility is again proving to be an invaluable asset.

To see the digital version of this report, please click here.

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