TMB Bank of Thailand will buy back most of its offshore subordinated bonds, it said last week, adding to the growing number of Asian borrowers seeking to cancel international debt.
Continent-wide, banks and corporates faced with soaring borrowing costs and falling revenues are shifting out of international liabilities they had piled up in the boom.
TMB is to purchase $131.2 million of its own deeply subordinated hybrid tier one bonds, redeeming more than half of the $200 million perpetual notes it sold in 2006. It will pay investors just 57% of the bonds face value, after demand for them slumped in the wake of the banking crisis.
Cathay United Bank of Taiwan and Macquarie of Australia have each launched similar liability management exercises in recent weeks, while corporate borrowers have also been quick to reduce their foreign debt.
Nine Dragons Paper, the Chinese recycling and cardboard company, sold $300 million of five-year bonds in April 2008 as it sought to raise funds for expansion, but returned to investors in February with an offer to buy back the entire deal at 53% of face value. Hong Kong-listed casino operator Galaxy Entertainment also bought back bonds in December, after scaling back its construction projects in Macau.
Most analysts expect that the number and scope of buybacks will continue to increase in Asia. But as secondary markets improve, the opportunity to buy back at a steep discount is falling. It can still make sense, but buybacks this year are likely to come more and more frequently from companies in distress.
Brayan Lai, a credit analyst at Calyon in Hong Kong, said that debt buybacks in Asia are split between two groups: first, distressed offers that often contain covenant strips and tend to be mainly in the high-yield space; and, second, more opportunistic deals.
The distressed offers include a proposal by Asia Aluminum, a Chinese metal producer, to buy back around $1.1 billion of international debt at a maximum of 27.5% of face value in March. Bondholders rejected that restructuring, forcing the company to appoint administrators. Taiwans ProMOS Technologies, the struggling semiconductor manufacturer, redeemed convertible bonds worth $336 million early last month, after investors agreed to an offer worth 25% of par value.
Florian Schmidt, head of debt capital markets for Asia at ING in Singapore, told Emerging Markets: Very few industries are finding it easy to deal with leverage at the moment. Buybacks will remain a big subject as long as earnings remain subdued.
Corporate earnings have fallen dramatically, to the extent that coupon payments have become a problem for highly leveraged companies.