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.