Asia G3 Bond Outlook: Issue Yields May Rise After Dubai Shock
By Ditas Lopez, Of DOW JONES NEWSWIRES
SINGAPORE -(Dow Jones)- Market panic from Dubai World's debt payment
suspension call may have eased but caution will remain, with only a handful of
Asian deals expected to hit the offshore bond market before the end of the year.
Even before last week's Dubai news, market players were concerned about new-
issue fatigue after bond issuance in G3 currencies out of Asia, excluding Japan
and Australia, hit a record high in October. In addition, liquidity concerns
generally limit issuance into the year-end.
But the announcement that Dubai World was temporarily suspending payments on
its $60 billion in liabilities means issuers that have been waiting in the wings
are unlikely to see spectacular demand for their prospective bond offers. That
could make it more expensive for them to issue new bonds.
It will be "challenging" to get deals done between now and year-end, said
Arthur Lau, a fund manager at JF Asset Management in Hong Kong. "Any big
positioning will have to wait until next year."
Dubai World's move rattled financial markets and spawned fears that some banks
might tighten lending, which could stall the global economic recovery.
To reassure markets, the United Arab Emirates on Sunday pledged to stand
behind foreign and domestic banks in the country by offering special additional
liquidity. Banks will be able to tap a facility linked to their current accounts
at the UAE central bank at a rate of 50 basis points above three-month Eibor,
the Emirates interbank offered rate.
With Dubai fears receding Asian stocks rose Monday, while bond yield spreads
and the cost of insuring bonds against default eased. The Markit iTraxx Asia ex-
Japan's investment-grade CDS index - which widened 12 basis points to 128.5
basis points Friday - was bid around 115 basis points Monday.
Still, "even if there is some relief at the beginning of this week, nerves are
likely to remain frayed going into the end of the year, with the multi-month
trend of improving risk appetite likely to falter," Calyon analysts wrote in a
note to clients.
Dubai World's problems exacerbated concerns about the economic recovery
following the deepest recession in decades.
Fortunately, many of Asia's frequent borrowers aren't expected to return to
the market for the remainder of the year. Only those with urgent funding
requirements are likely to tap the market, bankers and analysts said.
The Philippine government has completed its foreign commercial borrowing for
the year, National Treasurer Roberto Tan said last week. The same is true for
state-owned Export Import Bank of Korea; its chief financial officer said last
week that the bank has raised over $8 billion in offshore bond markets so far
this year and won't sell any more bonds in 2009.
While the Dubai news may diminish some investors' appetite for bonds, others
may be drawn by the prospect of higher yields.
"I don't expect Asian companies to have more difficulty in obtaining debt
capital, but the ripple effect from higher borrowing costs in the Middle East
may result in slightly more expensive pricing in Asia, " said Scott Bennett,
head of Asian Credit at Aberdeen Asset Management in Singapore.
"I certainly expect investors to differentiate between the two regions and not
consider them both EM."
Currently on the road is Singapore's First Ship Lease Trust (D8DU.SG), which
is marketing up to US$200 million in high-yield seven-year bonds.
The company last week met investors in Singapore, Hong Kong and London and
will meet more investors in Boston on Monday, New York on Tuesday and the U.S.
West Coast Wednesday.
The Singapore company, also called FSL Trust, will use the proceeds to repay
existing debts, fund future vessel acquisitions, and for general corporate
purposes, according to a filing with the stock exchange.
- By Ditas Lopez, Dow Jones Newswires; +65-6415-4044; ditas.lopez@dowjones.com
(END) Dow Jones Newswires
11-30-090230ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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