It has been a surprisingly good year for Asian banks and one in which they have weathered the global financial crisis well and clearly outperformed their US and European counterparts.
Matahari Putra Prima had the distinction in 2009 of reopening the Asian high-yield market after its 18-month closure with an exchange offer that represented an efficient liability management exercise and brought in new money for the retailer. Given its aggressive expansion plans, further G3 issuance from the company is likely.
China State Construction Engineering (CSCE), the country’s largest home-builder, raised Rmb50.2bn (US$7.35bn) through a Shanghai IPO in July, at a time when the global equity markets were still struggling. The well-received deal stands as Asia Pacific’s largest IPO and one of the world’s largest so far in 2009.
Energy company PTT and its subsidiaries raised a total of Bt117bn (US$3.5bn) from the baht bond market, confirming Thailand’s status as South-East Asia’s busiest domestic bond market this year.
Singapore-based Olam has made a substantive change in its long-term strategy that has made it become one of Asia’s most active issuers and borrowers across debt, equity and loan markets.
Hong Kong conglomerate Hutchison Whampoa is having its most high-profile year in the offshore bond markets since 2003, having brought a series of liability management exercises and a barnstorming US$3bn two-part global. There’s no doubt that in 2009 Hutch has cemented its reputation as Asia’s most savvy corporate funder.
Guangdong property developer Country Garden has a long record of bold issuance. Its April 2007 IPO raised US$1.9bn and was the defining transaction of a clutch of lucrative Hong Kong listings of mainland developers at that time; it went up 35% on the first day of trading and reportedly turned its five founding shareholders into billionaires.
Suzlon Energy’s successful but complex restructuring of US$500m in two series of CBs in July set a new benchmark for Indian issuers looking to work through potential large debt liabilities and ensure they remain a going concern.
When the global credit markets dried up in G3 currencies, many argued there was an opportunity for Asian local currency bond markets to prove their worth as an alternative funding source. The Ps38.8bn (US$800m) bond by San Miguel Brewery in March gave credence to that argument by illustrating the liquidity that could be accessed in domestic bond markets.
For a debut borrower in the international capital markets, Australian supermarket operator Woolworths displayed remarkable savvy when it tapped an offshore loan earlier in the year. It achieved its objective of diversifying its funding sources and has now made itself a household name with Asian banks.
IFR Asia: Is this extraordinary rally that we’ve seen in the credit markets since March and which has brought back the bid for standalone primary issuance in Asia, which would have been unthinkable a year ago, sustainable?
Rating agency Moody’s last week added to the turmoil in the Chinese credit market with a report highlighting governance and accountings risks on dozens of PRC companies.
China is having a good crisis. Its economic growth rate may have halved but the Chinese economy is still set to grow at 6.8% this year, a rate that would be blistering almost anywhere else in the world. Hong Kong and Taiwan are not doing as well but the mainland’s strength is a valuable prop.
Hong Kong’s IPO market lost out on a much-needed boost last week as Sun Art Retail, China’s largest hypermarket operator, was forced to delay its debut due to a sloppy mistake in its prospectus.
If China is struggling, it is the sort of struggle most countries would love to face. Sure, GDP growth almost halved between March 2007 and December 2008 – but that is from 13% to 6.8%. Even after its fall it was still much higher than any developed economy in boom-time full throttle.
The recovery in China’s property market has sparked a surge in property developers’ share prices and a lot of secondary fundraising. However, primary issuance from property names remains thin even though the IPO market is heating up. Many observers expect the market will correct downwards again and that sizable new issuances will only come in 2010.
When TPG’s Newbridge Capital arm agreed to sell its stake in Shenzhen Development Bank to insurer Ping An, international commentary focused on the successful exit by a western private equity firm from a Chinese business. But there was another, less remarked trend in evidence too: the growing interest in the universal banking model in China.
Taiwanese depositary receipts are Taiwan’s equivalent of B-shares – illiquid and largely ignored. That status is changing however, largely thanks to a rules easing introduced this year that allows companies to use funds raised from TDR listings to invest in China. The liberalisation flies the flag for Taiwan’s larger push for economic integration with the mainland.
China’s lending explosion is likely to continue into the second half of the year, causing concerns about inflation and leading to speculation that regulators may implement measures to dampen the country’s sizzling loan market.
The Hibor/Libor basis swap drives foreign borrowers’ issuance in Hong Kong dollars and a favourable basis situation in 2009 has ensured Hong Kong remains an issuing venue of choice more than any other domestic bond market in Asia. This year’s solid pace looks set to make 2009 the biggest yet for offshore issuance in Hong Kong.
Taiwanese banks, flush with cash, have become a useful source of funding for borrowers around the world. It’s a happy coincidence of interests: a source of revenue and loan growth for the banking sector, and a well of capital for overseas banks and companies starved of many of their usual funding outlets.
Every bank seems to have a Sino-foreign JV on the boil these days. However, the offshore institutions are still figuring this market out, and most do not have access to brokerage licences. All the offshore institutions are capped at a minority ownership, and all face challenges of having to repatriate cash out of China.
Signs of life have emerged in Asian equity markets. Investors have drawn some badly needed confidence from the recent global stock market rally and issuers have worked out what sort of deals they can get done in tough market conditions.
With investors still reeling from their losses from mini-bonds, accumulators et al, the public market for structured products is taking a beating, especially structured equity. Traditionally a mainstay of the market, the sector has spent the past 18 months in the cellar, partly because structured equity is fundamentally a bull market product, and partly because regulators have put the brakes on new issuance.
Two of the region’s billion dollar rights issues – Maybank and Axiata– were completed in the first half of 2009, causing a stir in the otherwise quiet Malaysian market. The right issues have seen foreign houses vying for a piece of the action, but domestic banks have largely dominated the underwriting.
After months of inactivity, Indian equity markets finally sprung to life in euphoric fashion in mid-May with the stock market soaring in response to the national election outcome.
China Zhongwang, the country’s largest aluminium extrusion products maker, completed the world’s largest IPO so far this year. The company, like many other Chinese companies, has benefited from China’s stimulus package. The Government’s help has prompted investors from all over the world to bet that the Chinese economy will recover faster than the rest of the word.
Taiwan’s D-Ram sector has experienced rollercoaster-like sentiment over the past few months with the mood swinging from one extreme to another. ProMOS Technologies was at one point on the verge of bankruptcy, but the sector’s rapid recovery has allowed the beleaguered chipmaker, along with others, to tap the equity market.
The Australian ECM space has been a hive of activity in the first half of 2009 with more than A$20bn raised via entitlement offers and placements in just the last couple of weeks. Huge demand from institutions for increased equity exposure, especially in light of recent rally in stock markets, has made raising such a large amount possible.
The primary equity-linked space in the US and Europe is on fire but things have been much quieter in Asia with issuers still apprehensive about the depth of investor appetite. However, there are signs of a revival in Asia over the coming months.
Another year, another long-term strategic blueprint-style plan for the Asian Development Bank. This year, however, the bank’s planning is underpinned by sizeable increase to its resources.
A particular theme seems to define the ADB agenda every year, depending on what economic/political/financial forces are engulfing the region. The past 12 months have all been about the credit crisis and the dwindling capital supply available to Asian SMEs. The ADB has tackled the problem at its most essential level: trade finance.
About US$50trn of the word's wealth was destroyed in 2008 – or one year's worth of GDP, according to a report released in mid-March by the Asian Development Bank. Asia accounted for nearly US$9.62trn or 19.25% of those losses.
The role of organisations such as the Asian Development Bank has become critical in responding to the global financial crisis. Efforts are being made to boost trade that would revive the global economy. The ADB president Haruhiko Kuroda talks to Prakash Chakravarti about the bank’s efforts in that regard and shares his views on the potential for an alternative international currency as well as Asian monetary integration.
Despite a 22-year stint with the ADB, Rajat Nag, managing director general, feels he has been with the bank for a very short time. The enthusiasm and excitement he had when he joined the bank still lives because of what Asia has gone through. He talks to Prakash Chakravarti about the ADB’s achievements and the way forward.
As the financial crisis blooms into a global economic recession, Asia’s fragile political arrangements and democracies are coming under stress. Asian politics can be tumultuous at the best of times – throw in two wars in the Middle East, increasing concerns about economic dislocation in China and ongoing power struggles in Thailand and Malaysia, and the region’s political risk problems start to mount.
Multilateral development banks are political beasts. In this article an ex-ADB staffer talks about the historic and organisational issues that complicate the aid logistics of development banks, and the urgent need for reform.
The oil price spikes may be a year behind us, but they were a timely reminder of the necessity of addressing Asia’s long-term energy needs. The ADB is rolling out all manner of sensible, practical solutions to bring energy to the people, and in an environmentally sustainable manner.
As part of its corruption fighting measures, the ADB independently investigates dozen of cases every year. It manages to process this volume of casework partly because it does not publish those names it deems guilty of corruption.
Corruption is a serious problem in the developing world and poses a significant hurdle to one of the ADB’s fundamental objectives of poverty reduction as the consequent economic hit is to the poor. Projects involving development finance institutions such as the ADB have become more vulnerable in the aftermath of the global financial turmoil.
The current global financial crisis has tested the policies that Southeast Asian governments implemented after the Asian financial crisis little more than a decade ago. By and large, the region has weathered the new economic storms well, but the challenges ahead remain considerable.
Southeast Asia as a whole economic zone is expected post flat growth in 2009, hurt by plunging exports and weak consumption on the back of high inflation and rising unemployment, according to leading economists.
Swap markets anchor fixed-income markets. They facilitate hedging, underpin primary public issuance via cross-currency and basis swaps and privately placed structured MTNs. However, Southeast Asian swap market development is patchy at best and much work remains to get them to the level of depth of the US and Europe or even more developed Asian markets like South Korea.
Funding support from still cashed-up Asian sovereign wealth funds is driving a wave of rights issuances emerging out of Southeast Asia.
The Philippines is waking up to the power of its onshore bid, with both the sovereign and the country’s corporates detaching themselves from their traditional reliance on the offshore markets. And San Miguel recently proved with the Philippines’ biggest corporate peso deal that onshore liquidity can deliver in the size once thought only the G3 markets could deliver.
When the government first imposed a windfall tax on independent power producers in July last year, the move was met with a huge uproar from the financial community. The industry was concerned that it would stifle the growing domestic bond market. By the time the levy was removed in September, the damage had already been done. And since then Malaysia’s bond market has never quite recovered to its levels of the first half of last year.
Indonesia may finally reach its true potential in the Islamic finance space, as a spate of regulatory improvements has been put in place to facilitate the market’s development.
The global economic crisis has claimed a clean sweep of the world’s economies and Singapore has been no exception, sinking into recession. However, the city state boasts of a resilient loan market thanks to plenty of refinancings, well capitalised local banks, active foreign lenders and supportive government measures.
Thailand’s banks have so far weathered the global financial storm well, but its export-oriented economy looks set to feel the crunch from the global economic slowdown.
As capital markets remain largely closed, Asian companies are increasingly turning to rights issues and private placements as equity raising instruments as Singapore’s CapitaLand Group has shown.
The global financial crisis has come to Asia and 2009 looks set to be a year of pain for Asian economies. If optimists were talking a year ago about how Asia had decoupled from the US and European economies, today they understand more fully what it means to live in a globalised word.
Economic growth in Asia is expected to slow sharply this year, ending a decade of stellar growth, as the global recession hurts exports and domestic demand weakens. “We are heading for a very bad year and it’s going to be worse than the downturn experienced in the 2001 dot-com bust,” said Claire Innes, Asia Pacific economist at Global Insight, who said Asia would grow at it slowest for 18 years.
The relative dynamic of G3 bond issuance from Asia and issuance from the region’s domestic markets was placed in stark relief last year when offshore public G3 primary markets slumped to a US$22.8bnbn-equivalent print versus an average of US$43.5bn-equivalent over the past five years, while domestic markets produced US$58.4bn-equivalent of issuance against an average US$41.6bn over the same period. The trend should continue this year.
Depressed equity prices, a spreading global recession and increasing risk-aversion among investors are likely to kill the motivation for Asia Pacific companies to be audacious enough to launch IPOs in 2009. The IPO pipeline, which had dried towards the end of 2008, will probably completely shut in the first half of 2009 and the most optimistic are now only hoping that stability will return to stock prices and that a few listings will follow in the second half of the year.
There is no doubt that securitisation will face a tough year in Asia in 2009. "Issuers should get used to the fact that funding is a privilege not a right," warned William Ross, head of capital markets, structured finance at HSBC in Hong Kong.
The impact of the financial turmoil on global capital markets is already translating into pain for Asian loan markets with 2009 expected to experience a significant drop in volumes. Whatever little activity that takes place will come through club-style top-heavy financings and amendments and waivers.