Advertisement
Advertisement

Asia moves closer to corporate bond market

Sean Kennedy

DESPITE the efforts of banks to resist the trend, Asian corporates are moving towards debt funding and away from traditional loan syndications, according to Peregrine Fixed Income.

'An Asian bond market is being born; it is a market in transition,' Peregrine's managing director Andre Lee said.

He said disintermediation - the process by which borrowers cut out the middleman and use bonds to borrow, instead of going through a merchant bank - was necessary to meet Asia's huge funding needs.

Peregrine has launched a new credit research yearbook, which it bills as the first and only one of its kind in Asia, as part of its effort to promote the development of Asian fixed-income markets.

The 15-member credit research department, led by Jaideep Krishna, evaluates the ability of corporates and financial institutions to service their debt.

A Hopewell Holdings bond, which Peregrine sought to arrange in 1994, had failed partly because of resistance to disintermediation, Mr Lee said.

Hopewell had won an investment-grade rating, and there had been a pool of investors willing to take its bonds.

In December 1994, Hopewell had surprised the market by saying it had decided to raise a secured dual-currency loan from a syndicate of banks instead of issuing a bond.

Hopewell had been expected to issue up to US$1 billion, but ended up entering into a US dollar and Hong Kong dollar secured loan facility with Hongkong Bank and Hang Seng Bank to borrow up to US$744 million.

Mr Lee said that decision was part of a 'tug of war' over disintermediation.

He said Asia needed more investment banks, more investors, and needed to move to bonds.

Syndicated loans had been the traditional way of raising funds for Asian borrowers. 'Old habits die hard,' he said.

Mr Lee said major rating agencies had entered the region, while some Asian countries had set up their own agencies.

There still were thousands of Asian companies that could be rated.

He said loans were beginning to take on the characteristics of bonds.

'I really do believe you go through a phase where bonds are not bonds anymore and loans are not loans,' he said.

But the market would not expand without greater disclosure and research available for non-Asian investors.

Peregrine is opening domestic sales and trading desks in Bangkok, Jakarta, Bombay, Taipei and Seoul which will be linked to head office in Hong Kong to trade domestic debt securities.

'We will enter the closed markets of Asia,' Mr Lee said.

Post