Euro 'new base' for Asian bond issuers

Euro 'new base' for Asian bond issuers

HONG KONG (Reuters): The advent of the euro will open a new
source of funding for Asian borrowers, but analysts said it could
take some time before the region's bond issuers start tapping the
market.

"In time, the euro-denominated debt market could become almost
as important as the U.S. dollar market, given the sheer size of
pension funds...and that will open up a whole new debt market for
Asia," said Raja V, head of fixed income research at BA Asia.

"But I don't think anyone (in Asia) wants to do a euro debt
issue just yet," he said.

Chris Francis, head of credit research at Merrill Lynch (Asia
Pacific), said the creation of the euro was a great opportunity
for Asian borrowers in the medium term.

"But in the short term, general sentiment toward emerging
market debt by European investors is still weak (in light of the)
Russian collapse just six months ago," he said, referring to
Russia's debt and economic crisis.

The euro was officially created last Friday to merge the
currencies of Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

It made its trading debut in Asia on Monday, opening at
US$1.1747 at 05:00 a.m (1800 GMT) in Sydney and rising as high as
$1.1913 in early European trading.

The birth of the euro would open to Asian borrowers a new
class of European bond buyers that would augment an already well-
established investor base for U.S.-dollar denominated deals of
Asian issuers.

"Most of the investors in Europe traditionally were currency
and government bond investors who were deciding whether, say, the
10-year deutschmark curve was attractive relative to the five-
year lira curve," said Francis.

"Now, most of that has disappeared with the euro and fixed
income investors are reinventing themselves as credit investors,"
he said.

Up to now, European-currency denominated bond issues of Asian
borrowers typically have performed poorly in the secondary
market, said Paul Marshall, credit research analyst at Barclays
Capital.

"European currency investors haven't been as Asia- or credit-
literate as U.S. dollar investors, so when there have been Asian
bonds in individual European currencies, these have lagged in
secondary trading," he said.

"The euro might force investors to be more credit-literate and
that should ultimately get them looking at the better yields
available from Asian issuers."

The Philippine government has been mulling a euro-denominated
issue as part of its overseas borrowing plan, while China's
ministry of finance said last October it might consider a euro
issue.

Analysts said that among Asian issuers, sovereign and quasi-
sovereign borrowers certainly would be the first to tap the euro
bond market, but even these top-tier names were likely to take a
wait-and-see approach.

"It will take six months just for people to get used to
quoting in the new currency," said BA Asia's Raja V.

Of the emerging market issuers, "the ones that will benefit
right away will probably be from Eastern Europe, with Latin
America coming second and then Asia," he said.