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SCMP Reporter

THE Industrial Finance Corp of Thailand's (IFCT) launch of a five billion baht (about HK$1.5 billion) Asian currency note programme by Lehman Brothers in Thailand may mark the beginning of a boom in Asian debt markets.

  In Hong Kong yesterday, Lehman managing director and general manager Howard Pollack said the launch was the first of many Asian currency denominated notes with settlement based in the territory.

  He said that, until now, debt issue in Asia had been obliged to be in US dollars or yen and settled in recognised centres in the West because of the legal complexities of dealing in local debt.

  The Lehman-developed programme enables notes to be issued in Asian currencies and internationally recognised without the uncertainties sometimes linked to settlement.

  Lehman will secure settlement in Hong Kong. Through trustee arrangements in the territory, clients anywhere in Asia will be able to take delivery of or trade their notes after receiving confirmation of payment via Citibank's Asian branches.

  This differentiates Asian currency notes (ACNs) from listed Dragon bonds. They are also limited to one-off issues.

  ACNs developed by Lehman, with maturities from one day to 10 years, are generally traded over the counter, with markets and prices being provided on a market-making basis by Lehman in Hong Kong.

  To aid liquidity, Lehman in Thailand has appointed dealers to make a market in the ACNs. The market-makers are Bangkok First Investment and Trust Co, Finance One Public Co, IFCT Finance and Securities and Phatra Thaanakit Co.

  An ACN programme enables the issuer to deliver a series of notes over specific periods such as one, two or three years. That allows this type of debt to develop a more mature yield curve than offered by the current mish-mash of prices quoted on Asian debt.

  IFCT is a Thai Government-backed group set up in the 1950s to encourage private industrial development.

  ''This might indicate that there is some government support for this type of debt issue, which in itself has implications for many other financial institutions,'' said Mr Pollack.

  In Hong Kong, a fully developed ACN programme seems unlikely as the potential yields, of say one to three per cent, would be uncompetitive with other issues in high interest rate Asian countries and with domestic inflation.

  Mr Pollack said many institutions interested in Asian debt were considering Malaysian dollar, Indonesian rupiah or Thai baht issues because of their relatively higher rates of interest, which offered a return in real terms.

   Thai issues for instance might yield in the range of eight per cent.

  ''The ACN programme is designed to enable Asian borrowers to tap Asia's growing capital resources to fund a variety of infrastructure and other developmental needs.

  ''Furthermore, the programme offers borrowers and investors a single marketplace to issue, trade and invest in bonds denominated in Asian currencies during Asian time,'' he said.

  Mr Pollack said most interest in the first ACN had been from Asia, although there was a growing appetite in the West for Asian denominated debt paper.

  In Asia, the growth in intra-regional trade had created a new and growing appetite for short to medium-term Asian denominated debt ready to back trade finance.

  Many countries in the region had focused development of their equity capital markets during the 1980s as a capital formation source, while in the West, especially the US, new forms and the development of debt paper had been pursued.

  ''Having developed relatively mature debt markets in the United States we think we can offer something to Asia by way of debt markets, which we believe is also something governments in the region are interested in,'' said Mr Pollack.

      Lehman was planning further ACNs in the region but it did not expect any from Hong Kong in the medium term, he said.



Asian note may be first of many