ASIA DEBT PIPELINE: Flurry Of Bonds Seen Before Aug Lull
ASIA DEBT PIPELINE: Flurry Of Bonds Seen Before Aug Lull JP/15/Debt
ASIA DEBT PIPELINE: Flurry Of Bonds Seen Before Aug Lull
Karen Lane Dow Jones/Singapore
Despite hefty issuance last week, there looks to be no let up in Asian international bond sales before the market goes on its August summer break.
On the cards are a long-awaited euro-denominated bond from Korea Electric Power Corp. and a deal worth around US$500 million from the Malaysian state of Sarawak. Also coming up are at least three other Asian issues and one Asia-targeted deal from outside the region.
Asian borrowers pulled in a massive US$2.5 billion via international bonds last week alone. Although that didn't mark it out as the busiest week this year, it was the liveliest since mid March after which primary and secondary markets turned sour amid worries over rising U.S. interest rates and credit downgrades at U.S. auto makers.
Sentiment seems upbeat, suggesting there is plenty of room for more issuance.
"For the moment, there seems to be a lot of money chasing these deals. The bookbuildings have been very successful, they have been oversubscribed and the deals have done well in the secondary market," noted Brian Verlaan, head of fixed income research at Standard Chartered Bank.
The Export Import Bank of China, the last Asian borrower to tap the market, Thursday sold US$1 billion of paper after pulling in an order book of almost $6 billion. After pricing the 10-year deal at 85 basis points over Treasurys, the deal tightened to 82- 81 basis points shortly thereafter.
Kepco, 53.9 percent directly or indirectly owned by the South Korean government, is among those set to emerge this week. The energy transmission and distribution firm is looking to sell a 250 million euro offering of five-year notes - a deal that has been in the pipeline for several months.
"There has been a lot of documentation to do," said a banker familiar with the deal led by ABN Amro, Barclays Capital and HSBC. The final decision on when to sell the deal is expected on Monday.
Among the issues said to have been holding back the sale was the need for the firm to update documentation in Europe following the July 1 European Union Prospectus Directive requiring borrowers listing in the region to provide more financial information.
Although the borrower tapped the market in April 2004 for $300 million in 30-year debt, its nearest comparable is a $350 million bond due 2013 and currently trading around 67 basis points over U.S. government debt.
Also coming up is a deal for the Malaysian state of Sarawak from Deutsche Bank. The borrower - which last tapped the market in December with a $350 million Islamic bond - is returning with a 10-year deal of around US$500 million.
Meanwhile Hong Leong, a mid-sized Malaysian bank, which mandated Barclays Capital and BNP Paribas some time ago for what will be its debut deal, is expected to tap the market soon too. Monday it received issuer and issue rankings of BBB+ and BBB respectively from FitchRatings.
The borrower - which saw pretax profit of 564.8 million ringgit in the nine months to Mar. 31, up from 400.9 million ringgit in the same period a year earlier - has said it will use the proceeds of the $200 million subordinated bonds for general banking purposes.
However, market speculation has been that it will use the funds to return capital to shareholders, since the bank had a strong risk-weighted capital ratio of 16.8% as of the end of March.
Market watchers expect both Malaysian deals to go well, not least because Malaysian credits have been in solid demand on the secondary market for some time.
"I think the scarcity value is still there. The country's fundamentals are quite stable and the country's political risk is low, especially compared with others in the region," said Ben Yuen, head of fixed income with First State Investments.
into next month, most bankers will be getting ready for what is expected to be a flood of issuance in September once investors are back from their summer breaks.
Among the most closely watched will be the China Development Bank which has approval for a deal of up to $1 billion.
Market talk has been rife that the borrower has mandated eight banks - BNP Paribas, Barclays Capital, Citigroup Inc., Goldman Sachs, HSBC, Merrill Lynch, Morgan Stanley and UBS AG - for the 10-year deal.
The policy bank declined to comment, saying nothing has yet been decided for sure. However bankers not reportedly involved expressed incredulity that so many banks were mandated, not least because the borrower's 2004 deal - with six lead managers - was less than a success.
Many argue that a greater number of managers makes a deal harder, not easier, to sell because it is tougher to coordinate the process.
In September last year, CDB - the largest of China's three policy banks - sold $1 billion in U.S. dollar and euro- denominated paper after cutting the euro portion due to tepid demand from investors; the offer drew in only $1.6 billion in orders.
The $600 million U.S. dollar-denominated portion has done better in subsequent trading however and is now bid at around 75 basis points over U.S. Treasurys after getting placed originally at a 99-basis-point premium, near the top of guidance.
If the Chexim deal is any example, the BBB+/A2-ranked CDB will have to pay a premium of 11-15 basis points over the 2014 issue if it is to sell well this time around.