Asia looks to itself for funding

By Rafael Nam
Reuters
Monday, April 14, 2008
HONG KONG: Although U.S. and European companies are struggling to borrow money to finance operations and growth, Asian companies are enjoying the ultimate luxury in a global credit crunch: access to funds.

Asian companies that once sought funding abroad are turning to home markets to raise money, with sales of local currency bonds that are expected to remain strong as well-performing economies, appreciating currencies and higher yields help lure investors.

Companies are even shopping around the region for funding, choosing cross-border local currency deals over the white-knuckle ride of selling dollar-or euro-denominated debt in rough international markets.

"While dollar issuance has dried up, local markets remain open, and many are currently underpinned by strong pools of liquidity," said Aamir Rahim, who works at Citigroup as the co-head of fixed income, currencies and commodities for the Asia-Pacific region.

Referring to issuance in dollars, euros or yen, he added: "Asian cross-border local issuance is also on the rise. Issuers are becoming more proactive in looking at alternatives to G3, or their own local currency."

For big U.S. or European companies, however, going the Asian route is unlikely to be a solution to their funding problems, analysts say.

With the exception of Japan, the region's markets are too small and pose too many regulatory hurdles to allow outsiders to borrow significant amounts on attractive terms.

The global financial credit crisis and the prospect of a U.S. recession have severely curtailed corporate borrowing around the world.

Total sales of new debt globally dropped 45 percent to $1.2 trillion in the first quarter from a year earlier, according to data from Thomson Financial.

The data show, however, that in Asia, although the number of issuers has fallen, the total volume of local currency bonds sold has increased 5.6 percent to $30 billion.

The currencies of South Korea, China, India and Hong Kong have topped the list of the most popular currencies.

One big reason for the increase in local bond sales, analysts say, is that Asian economies are proving more resilient to the credit market turmoil than more developed nations, including the United States, which is teetering on the brink of recession.

The Asian Development Bank forecast this month that economic growth in the region, excluding Japan, should average 7.6 percent in 2008.

That would be the weakest rate in five years but still significantly above levels elsewhere.

Furthermore, a decade after a financial crisis of its own, Asia has limited exposure to the U.S. subprime mortgage debacle that brought on the current global crisis.

Large current-account surpluses have allowed governments around the region to build up hefty foreign reserves, fueling a steady rise in several currencies, like those of Malaysia and Thailand.

And while inflation is a headache for policy makers, it has driven yields higher, making them attractive for investors.

"Asia's local bond markets have benefited from structural improvements and fiscal and political discipline," said Fergus Edwards, director of Asia syndicate at UBS. "That has led to resurgence in domestic borrowings to compensate for international markets that are illiquid for Asian issuers."

As international markets seized up, Asian issuers sought to tap regional bond markets, settling for smaller deals worth hundreds of millions of dollars rather than billions that could be placed with global investors.

For example, Malaysia has been a popular destination, with the Export-Import Bank of Korea and the State Bank of India becoming this year the first issuers from their respective countries to sell ringgit-denominated debt.

"A growing part of the business includes Asian issuers, who instead of looking at big benchmark deals, are willing to raise money at smaller sizes and at cost-effective rates in the Asian markets," said Rahim, the Citigroup executive.

The biggest deals have been in Japan, where a wider investor base and a more developed market can more easily accommodate large-sized offers of Samurai bonds, yen-denominated debt from non-Japanese issuers.

Sales of Samurai bonds increased to ¥526 billion, or $5.2 billion, in the first quarter, nearly quadrupling from the same period of 2007, according to Thomson data.