Debt bankers in Hong Kong and Singapore are having more and more late nights. But rather than wasting the twilight hours at the local drinking hole, many are stuck at their desks waiting for a call from the other side of the Pacific. The reason: success or failure of Asian bond sales – which used to be a predominantly local affair – is increasingly influenced by appetite from credit investors in the US.
China’s Baidu was among the first Asian borrowers to capitalise on interest from US investors. It sold $1.5bn of bonds directly to US-based funds in late 2012. It had the natural advantage of being a New York-listed company in a sector well known and understood by local portfolio managers: internet search. Such deals are still rare, but it signalled the beginning of an important, if slow, shift in the development of Asia’s debt markets.
Most Asian bond sales involve a significant local element – often domestic life insurers and pension funds – and usually a sizeable European leg. Few companies have been able to copy Baidu’s example and sell a US-only deal, as defined by the type of regulatory regime a bond is designed for. A US deal must meet “144a” legal standards, while European and Asian sales require “Reg S” regulations.
Most issuers choose to adopt both frameworks in order to maximise their chances of getting a better price and broadening their investor bases, according to Hital Desai, a director in Bank of America Merrill Lynch’s debt syndicate.
Even so, the longer-term trend is becoming clear: US investors are taking a bigger slice of certain types of Asian debt.
Estimates by Bank of America Merrill Lynch show the proportion of bonds going to US funds for South Korean financials in particular has doubled in the past year, and now accounts for more than half the total demand. South Korean companies have a special attraction – they are treated by some investors as developed market products rather than as emerging market investments. Yet, partly because MSCI, the index provider, still marks Korea as an emerging market, investors will typically get higher coupons for credits rated at the same level as western counterparts. Even when the pickup is small, it has been enough to entice funds at a time of low rates globally.
“So long as rates in the short end [of the curve] are zero, investors are going to be keen to deploy cash and look for that extra basis point wherever they can find it,” says Herman van den Wall Bake, head of Asian fixed income capital markets at Deutsche Bank.
“Because spreads in the US and Europe have come in so far so quickly, the relative value proposition [of Asian debt] for these investors is that much more compelling,” he says.
Away from the Korean example, there are certain sectors that are likely to find the going easier in the US. Technology companies, many of which are listed on the Nasdaq or NYSE, will often find a more willing audience for their debt. Tencent recently sold $2.5bn of bonds, which drew strong interest from US funds and helped the Chinese online gaming developer achieve a record low spread over Treasuries. Similarly, Bharti Airtel, the telecommunications group, was able to sell India’s largest ever corporate bond deal in May this year, in part thanks to strong US demand.
Energy companies also have appeal. State-owned Chinese oil producers such as Cnooc and Sinopec have been among the busiest borrowers in Asia’s bond markets for a number of years. US investors find an easy read across from the likes of ExxonMobil or Chevron, giving them greater comfort in buying their bonds, say bankers.
Increased US involvement has been one factor helping to push Asian bond issuance to record highs this year. April was the busiest ever month for Asian debt sales, which breached the $100bn level in early June, according to Dealogic, the data provider. That puts 2014 on track for a full-year record, topping last year’s total of $150bn.
But it is not a one-way street for all borrowers. Those in sectors without a strong point of comparison are struggling to make headway Stateside.
Chinese property developers are an obvious example. The housing market in China is largely policy driven, putting the fortunes of the companies in the sector in the hands of government officials. Keeping up with the twists and turns of sentiment towards the sector – much of which is listed in Hong Kong – makes for an unappealing proposition.
Financials too could find it hard to break America. Chinese banks are mostly state owned, and are often used as tools of government policy. In 2009 China launched a massive stimulus package to help rescue the economy from the fallout of the financial crisis in the west. That caused much wasteful investment, largely funded by the banks. The bill for this has yet to be quantified.
“只要（收益率曲线）短端利率为零，投资者就将急切地配置现金，寻找在哪里能多获得一个基点的收益，”德意志银行(Deutsche Bank)亚洲固定收益资本市场部门负责人赫尔曼?范登?沃尔?贝克(Herman van den Wall Bake)表示。