Asian sovereign bond issuance to pick up after 2013 lull
Tuesday, 24 December 2013 00:01
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Refinancing needs will push issuers to offshore market
Dollar issuance by Asian governments may double in 2014
First deals may happen as early as January
HONG KONG (IFR): Sovereign offshore debt issuance may nearly double in 2014 after a dry year in which only Indonesia and Korea brought deals.
“We expect up to $ 8-$ 12 billion of sovereign issuance in 2014, up from $ 6.5 billion this year. Issuance is likely to be front loaded,” said Avanti Save, Asia sovereign credit analyst at Barclays.
Sovereign supply in 2013 dropped from $ 9.2 billion in 2012 and $ 8.3 billion in 2011. Bankers widely expect that to be reversed next year as governments refinance large dollar maturities.
Indonesia and Philippines are expected to be the first ones out, with some speculating they may print deals in the second week of January. Indonesia is planning to come to the dollar market while also making a debut in euros.
The market also expects opportunistic moves from sovereigns like Vietnam and Thailand.“The increase in issuance partly stems from the need to finance upcoming maturities and fiscal or current account financing needs, but the inclination to avoid supply pressures in local markets also plays a part,” Save said.
Indonesia, Sri Lanka and Korea all have external debt repayments due next year.
Sri Lanka (B1/B+/BB-), which was absent from the international bond market this year, is planning to offer two $ 750 million long-term international bonds in 2014, according to bankers.
In its last visit to the market in July 2012, Sri Lanka raised $ 1 billion from a 5.875% 10-year global bond that pulled in a huge $ 10.5 billion in orders. The offering, the sovereign’s fifth US dollar deal, was priced to yield 437.1 basis points above US Treasuries.
The Republic of Indonesia (Baa3/BB+/BBB-) already has selected seven banks to handle its offshore bond sales in 2014 and it plans to front-load issuance before an expected spike in global interest rates.
The Republic of Korea (Aa3/A+/AA-) priced a 10-year sovereign bond this year, marking its return to the dollar bond market after a gap of four years. This time, though, bankers expect the sovereign to return as early as the first quarter next year.
“Korea has a $ 1.5 billion maturity in April so it makes sense for them to refinance that in the market,” said a Hong Kong based origination banker. “They should either do a new 10-year or create a full curve by printing a 30-year - which would be a blockbuster,” he said.
Return to dollars
Another sovereign absent from the market and expected to return is the Kingdom of Thailand (Baa1/BBB+/BBB+). Treasury officials were quite vocal recently about plans to visit the international bond market for the first time since 1997. A deal was expected this year, but did not materialise.
“It’s not a question of demand or market reception, it’s a question of willingness of the issuer to proceed and also the political situation,” said a Singapore-based syndicate banker.
Anti-government protesters in Thailand and the resultant snap election called by Prime Minister Yingluck Shinawatra for early February has possibly put these plans on the backburner. Yet, bankers expect the sovereign to come to the market once the unrest has settled down, not only to raise funds but to reaffirm its good standing with the international financial community. Much before that, the Republic of Philippines (Baa3/BBB-/BBB-) is expected to test appetite for sovereign bonds with its first dollar issuance as a full-fledged investment-grade credit - the sovereign was upgraded by all three agencies to high-grade status in the past year.
The Philippines secured its funding needs locally this year, but the nation has already appointed six banks for a US dollar global bond offering and it is widely expected to be one of the first deals to open the market in 2014.
Asian frontier
Bankers expect high-yield sovereigns to return to the market as well. The Socialist Republic of Vietnam (B2/BB-/B+), for instance, met global investors in April this year and sent out a request for proposals for a bond deal in August. The sovereign is expected to complete the mandate and do a deal in 2014. Vietnam should be well received. The nation’s GDP growth has rebounded from lows reached last year and has been accompanied by stable inflation and a strengthening in its external payments position, Moody’s said in a recent report. The country also has made progress restructuring its banking system, the rating agency said.
There is even talk of frontier markets in the region trying their hand.
Bangladesh (Ba3/BB-) has expressed interest in selling bonds in the international market for infrastructure investments. Earlier this year Papua New Guinea picked leads for a bond offering as well.
The issuers would be emboldened by the reception various Single ‘B’ rated African nations got this year. Indeed, a rare Single ‘B’ credit from Latin America, Republic of Honduras (B2/B), priced a well-received $ 500 million bond yesterday.
“A couple of years ago, the theme was sub-Saharan Africa, Gabon did a transaction last week. There is every reason to think that issuers in Asia will get very good demand,” one banker said.
