Asian debt offerings facing a global crisis of trust
By Rafael Nam Reuters August 27, 2008
HONG KONG: An expected deluge of Asian debt offers in September runs the risk of turning into a mirage as issuers grapple with a severe global crisis of trust.
Credit investors are bracing for an explosion of offshore bond sales from the region, led primarily by South Korea, where the government is considering its first sovereign offer in two years.
Among other potential bond issuers are South Korean state agencies like Korea National Housing, lenders like Wing Hang Bank of Hong Kong, as well as those with maturing debt like the South Korean automaker Hyundai Motor.
But it will not be easy. And it definitely will not be cheap.
The crisis that began in the U.S. housing sector over a year ago is still haunting the financial sector and slowing global economic growth just as inflation runs at multiyear highs.
Investors are thus playing it safe, and some of the deals that would have succeeded in the past will not be looked at. The ones that will, those investors say, need to have solid credit ratings, especially from a defensive sector, or a compelling and proven growth story.
Scott Bennett, a fund manager at Aberdeen Asset Management in Singapore, said not all will be successful in completing deals as some will be crowded out and others may reject the pricing.
“Credit investors still have a lot to be cautious about, and it is not going to get any better before the year-end,” he said.
Spreads in the region, which issuers use as a pricing guide for new bond sales, more than doubled this year.
Sales of G-3 bonds, those in dollars, euros and yen, have nearly halved to about $20 billion so far this year, compared with the same period of 2007, according to Thomson Reuters data.
Still, that has not stopped issuers from looking to sell debt and investment bankers from pitching those deals.
Interest comes mainly from issuers that held off deals in hopes that markets would improve. But few expect a turnaround anymore. If anything, they fear that spreads could widen even further.
Korea Railroad, for example, sold $300 million in five-year bonds at a yield of about 5.5 percent in May. On Tuesday it sold an additional $200 million of the bonds, but at 5.9 percent.
For many raising funds at home is not an option, as rising domestic interest rates make it more expensive than selling dollar-denominated bonds benchmarked against lower U.S. rates.
Some are also feeling the urgency because in an increasingly crowded field, issuers know it pays to be first.
“Issuers that need to sell debt in 2008, but haven’t done it so far this year, now only have four months left. So they will try to squeeze in their deals starting in September,” Bennett said.
The backlog of companies waiting to raise funds also extends to the equity side, where double-digit declines in stock markets have led to a slump in share issues and new listings.
A look at what has sold well this year provides a blueprint for what will do well in the rest of the year, investors say. Issuers with solid credit ratings and a reputation for fulfilling their commitments to bondholders are best placed to succeed.
Defensive sector deals have sold well, like the utility Hong Kong and China Gas, as well as riskier names in high-growth sectors like commodities that can inspire confidence that their earnings streams will be maintained.
Bonds from the Singapore-listed Noble Group, for example, attracted bids worth eight times the $500 million on offer in May.
Flexibility in getting the deals done remains essential as well, bankers say. Hopes for an issuance deluge have quickly been dashed by unforeseen events like the collapse of Bear Stearns and the woes at Fannie Mae and Freddie Mac.
But perhaps more important, deals come at a premium, and many potential issuers have been scared away by how much it costs to attract investors.
“Everybody knows how tough markets are,” said one banker, who spoke on the condition of anonymity because he was not authorized to talk to the media. “What we are advising our clients is that unless they absolutely need the money this year, it’s best to hold off.”
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Asian debt offerings facing a global crisis of trust
By Rafael Nam
Reuters
August 27, 2008
HONG KONG: An expected deluge of Asian debt offers in September runs the risk of turning into a mirage as issuers grapple with a severe global crisis of trust.
Credit investors are bracing for an explosion of offshore bond sales from the region, led primarily by South Korea, where the government is considering its first sovereign offer in two years.
Among other potential bond issuers are South Korean state agencies like Korea National Housing, lenders like Wing Hang Bank of Hong Kong, as well as those with maturing debt like the South Korean automaker Hyundai Motor.
But it will not be easy. And it definitely will not be cheap.
The crisis that began in the U.S. housing sector over a year ago is still haunting the financial sector and slowing global economic growth just as inflation runs at multiyear highs.
Investors are thus playing it safe, and some of the deals that would have succeeded in the past will not be looked at. The ones that will, those investors say, need to have solid credit ratings, especially from a defensive sector, or a compelling and proven growth story.
Scott Bennett, a fund manager at Aberdeen Asset Management in Singapore, said not all will be successful in completing deals as some will be crowded out and others may reject the pricing.
“Credit investors still have a lot to be cautious about, and it is not going to get any better before the year-end,” he said.
Spreads in the region, which issuers use as a pricing guide for new bond sales, more than doubled this year.
Sales of G-3 bonds, those in dollars, euros and yen, have nearly halved to about $20 billion so far this year, compared with the same period of 2007, according to Thomson Reuters data.
Still, that has not stopped issuers from looking to sell debt and investment bankers from pitching those deals.
Interest comes mainly from issuers that held off deals in hopes that markets would improve. But few expect a turnaround anymore. If anything, they fear that spreads could widen even further.
Korea Railroad, for example, sold $300 million in five-year bonds at a yield of about 5.5 percent in May. On Tuesday it sold an additional $200 million of the bonds, but at 5.9 percent.
For many raising funds at home is not an option, as rising domestic interest rates make it more expensive than selling dollar-denominated bonds benchmarked against lower U.S. rates.
Some are also feeling the urgency because in an increasingly crowded field, issuers know it pays to be first.
“Issuers that need to sell debt in 2008, but haven’t done it so far this year, now only have four months left. So they will try to squeeze in their deals starting in September,” Bennett said.
The backlog of companies waiting to raise funds also extends to the equity side, where double-digit declines in stock markets have led to a slump in share issues and new listings.
A look at what has sold well this year provides a blueprint for what will do well in the rest of the year, investors say. Issuers with solid credit ratings and a reputation for fulfilling their commitments to bondholders are best placed to succeed.
Defensive sector deals have sold well, like the utility Hong Kong and China Gas, as well as riskier names in high-growth sectors like commodities that can inspire confidence that their earnings streams will be maintained.
Bonds from the Singapore-listed Noble Group, for example, attracted bids worth eight times the $500 million on offer in May.
Flexibility in getting the deals done remains essential as well, bankers say. Hopes for an issuance deluge have quickly been dashed by unforeseen events like the collapse of Bear Stearns and the woes at Fannie Mae and Freddie Mac.
But perhaps more important, deals come at a premium, and many potential issuers have been scared away by how much it costs to attract investors.
“Everybody knows how tough markets are,” said one banker, who spoke on the condition of anonymity because he was not authorized to talk to the media. “What we are advising our clients is that unless they absolutely need the money this year, it’s best to hold off.”
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