Asian debt

Kittiratt Na-Ranong, Thai finance ministerThailand plans to tap the capital markets for as much as $15bn in its biggest international round of debt sales for a decade, write Pan Kwan Yuk, Michael Peel and Robin Wigglesworth.

The issuance will mark an important test of investor appetite for emerging Asian economies, which are seen by many as vulnerable to a gradual tapering of the US Federal Reserve’s emergency asset-buying programme. Kittiratt Na-Ranong, Thai finance minister, said the country was looking to raise between $10bn and $15bn over the next seven years – or at least $1.5bn every year – for a 2tn baht infrastructure programme. 

When is a BBB- borrower actually a AA+? No, this isn’t financial trickery of the kind made famous in the US subprime fiasco (and perhaps repeated in China in 2012). It’s a new facility offered by the Asian Development Bank to promote cross-border borrowing within Asia.

Under the scheme, the ADB-backed fund guarantees the debt of a corporate issuer, and effectively lends out its rating, regardless of the company’s actual rating. It’s been a year in the making, but finally the scheme has broken the seal. 

In a monetary world dominated by QE and zero interest rates, investor appetite for local currency EM debt has gone from strength to strength in the last few years.

In fact, EM yields have fallen from 6.8 per cent in mid-2007 to 4.7 per cent now. The question is: have they gone too far? 

It’s well known that loose credit has played a big role in driving Chinese growth, but the rest of Asia could have a debt problem too. So says HSBC’s Frederic Neumann, who warns that bank credit to GDP in Asia (excluding Japan) is now running at levels higher than in the 1997-8 Asian financial crisis. 

For big emerging market companies, issuing perpetuals – bonds with no expiry – is rather trendy at the moment. Earlier this week, Reliance Industries became the first Indian company to raise capital this way, with a bond yielding under 6 per cent… forever.

But, a day later and markets seem not to like it much, suggesting that the unlove for Asian perpetuals may not be confined to Chinese property issuers. 

The crisis in the eurozone has been causing plenty of worries in Asia – particularly around the supply of credit to the region. But the bigger problem for many countries lies closer to home – in a dramatic reversal of the build up of surplus cash that has been Asia’s hallmark for the past decade.

Across the region, according to research from Morgan Stanley analysts, declining exports and strengthening domestic demand for goods produced locally and abroad are combining to cut current account surpluses. 

By Jeffrey Lau of Barclays

Many Asian bond investors may feel that they are standing at the crossroads. Most bond yields have tightened significantly since the beginning of the year. Typically, for investors who hold little or no Asian bonds in their portfolio, they may ask whether it is too late for them to get into the market now. Investors who have stayed invested in bonds may ask whether it is a good time to exit or trim down their positions.