Asian debt volumes are set to skyrocket in the coming years
as declining risk premiums in the region relative to Europe
lower borrowing costs in international capital markets.
Roy Ferguson, chief executive officer for Southeast
Asia at Standard Chartered, told Emerging Markets this
weekend that the risk of investing in Asia has
dropped in the post-crisis landscape since countries like
Indonesia and the Philippines are on the verge of
Meanwhile, the speed of negative downgrades in the
West is increasing, Ferguson said . Although Asian
credit ratings have not jumped up, markets are demanding
lower compensation for Asian assets, a structural consequence
of the crisis.
Fergusons comments came as bankers were predicting
that Asian credit markets are set to decouple from the eurozone
debt market, which has been hit by softer risk appetite on the
back of Greeces woes.
In the coming weeks Macau casino operator Melco Crown
Entertainment will issue its debut high yield deal, joining a
host of Chinese property names, while Indonesian firm Bakrie
Telecom on Friday issued $250 million of five-year notes to
yield 11.5% over US Treasuries.
Nevertheless, Asia-Pacific ex-Japan cross-border debt
volumes are expected to fall to around $138 billion this year,
compared to a record binge of $171 billion in 2009 when
borrowers took advantage of the thaw in global markets to
Anita Fung, head of global banking and markets for the
Asia-Pacific region at HSBC, said that high-yield issuance will
dominate the supply of external debt issued by regional
borrowers this year. This is due to large liquidity
seeking yield pick-up as sentiment recovers, as well as in
response to a fall in borrowing costs.
Asias business cycle has picked as producers reinvest,
domestic consumption increases and Asian companies use their
balance sheet strength to go on a regional and international
Asia is also the main driver of global IPO activity,
accounting for 66% of global IPO volumes, on the back of robust
growth especially in China and India. This year to date Asian
IPO issuance, including Chinese A shares, is approximately
$37.1 billion, compared to only $700 million in the same period
of last year.
Bankers believe that Asian financial market conditions are
set to decouple from the G7 markets if and when developed
central banks hike interest rates. Fung said regional loan to
deposit rates have fallen again in recent months, with deposit
growth outpacing loan growth on a regional basis,
suggesting that local liquidity remains ample, helping to
anchor local rates.
In addition, the spread between policy and lending rates is
still extremely wide, as growing risk appetite will likely lead
to an easing of local monetary conditions even if global and
local policy rates start to rise, she said.
As a result, the supply of debt and equity deals could
disappoint bankers due to the competitive cost of bank finance.
Asian banking liquidity is coming back which offers
issuers alternative pool of liquidity, said Terence Chia,
Asian debt syndicate banker at Citigroup.
In other comments, Ferguson said stronger financial
regulation will reduce the presence of less-capitalized
Western financial institutions in Asia due to the higher
cost of bank capital.