Upfront
OPINION INTERNATIONAL FINANCING REVIEW ASIAForgive or forget
F
or any penitent defaulter looking for redemption
in the international bond markets, APP-China has a
lesson about the price of forgiveness: it’s 9%.
In today’s low-yield world, a yield near double digits
makes APP-China’s US$150m bond issue hard to resist,
even if it comes with a serious health warning thanks to its
connections to Asia’s worst corporate default.
Sixteen years ago, global creditors were incensed when
Asia Pulp & Paper stopped servicing US$12bn of debt in the
AFTERMATHûOFûTHEûREGIONSûlNANCIALûCRISISû7HILEûTHEûGROUPSû
debts were clearly unsustainable, international investors
bristled at the way they were treated following APP’s
standstill.
4HEYûBLAMEDûTHEûCONTROLLINGû7IDJAJAûFAMILYûFORû
convincing the Indonesian courts to nullify hundreds of
millions of dollars of bonds, ruling that the securities hadbeen sold illegally. They were also angry at the way that
APP’s Chinese assets were hived off from the rest of the
group, effectively protecting them from creditors. After
SOMEûMOREûCOMPLEXûMANOEUVRES ûTHEû7IDJAJASûSTILLûCONTROLû
APP-China.
4HATûISûNOTûTOûSAYûTHATûTHEû7IDJAJASûHAVEûBEENûSHUTûOUTûOFû
CAPITALûMARKETSûSINCEûTHENû4HEIRûmAGSHIPû3INARû-ASûGROUPû
has continued to be able to raise funds and is considering a
Singapore business trust IPO, while a property company in
the group, Bumi Serpong Damai, has sold US dollar bonds
three times in the past three years.
Last week’s deal, then, was all about buying redemption
for the APP brand, presumably with an eye on bigger issues
in the future, perhaps even a resurrection of a multi-billion-
dollar IPO that was mooted back in 2006.
Investors also put aside their misgivings around three
other high-yield issuers last week, welcoming Lionbridge
Capital, Yinson Holdings and Indonesia’s Geo Energy
2ESOURCESûBACKûTOûTHEûMARKETûAFTERûTHEIRûDEALSûFAILEDûTOûmYûATûthe start of the summer.
Rising rate expectations might drive asset managers to
look for higher-yielding assets, but it is logical to assume
that default rates will rise, too. At that point, investors will
quickly remember why some issuers pay such high yields in
THEûlRSTûPLACEMasala meddling
A
TûFACEûVALUE ûTHEûREMOVALûOFû-ASALAûBONDSûFROMûTHEû
Reserve Bank of India’s foreign investor limits is
AûSENSIBLEûVOTEûOFûCONlDENCEûINûTHEûFORMATû!FTERû
so many rule changes, however, market participants can
be forgiven for worrying that the latest relaxation may be
nothing more than a temporary measure to support the
currency.
)NDIASûREGULATORSûHAVEûBEENûSENDINGûCONmICTINGûSIGNALSû
about the offshore rupee market ever since it opened
WITHûTHEû)&#ûINûû0RIMEû-INISTERû.ARENDRAû-ODIû
championed the internationalisation of rupee bonds as a
way to help restart India’s stalling investment engine. But it
soon became clear that the central bank did not share the
premier’s agenda.
4HEû2")SûlRSTûDRAFTûOFûRULESûTOûCOVERûTHEûMARKETûnûINû*UNEû
ûnûEXCLUDEDû)NDIANûBANKSûENTIRELYûANDûBROUGHTû-ASALAû
bonds under existing rules on overseas borrowing, with
maximum coupons and minimum maturities designed to
prevent smaller Indian borrowers from taking on excessive
foreign currency liabilities.
A rewrite in October of that year relaxed restrictions on
the use of proceeds, before an April 2016 change knocked
the minimum maturity down to three years and raised
the maximum spread an issuer could pay. Banks became
ELIGIBLEûTOûISSUEûOFFSHOREûRUPEESûINû.OVEMBERû
4HENûINû*UNEûûTHEû2")ûTIGHTENEDûTHEûSCREWSûAGAIN û
RAISINGûMINIMUMûMATURITIESûBACKûTOûlVEûYEARSûBUTûLOWERINGû
MAXIMUMûCOUPONSûTOûJUSTûBPûOVERûGOVERNMENTûBONDSû
After all that, the September 22 guidelines released the
offshore rupee market from foreign investment limits,
unblocking a stalled pipeline.
-ASALAûBONDSûSHOULDûNEVERûHAVEûCOUNTEDûTOWARDSûONSHOREû
DEBTûQUOTASûINûTHEûlRSTûPLACE ûSINCEûTHEûFORMATûISûSPECIlCALLYû
designed to appeal to global investors who do not have
rupee trading accounts.
7ITHûTHATûBIZARREûRESTRICTIONûOUTûOFûTHEûWAY ûTHEûLATESTû
-ASALAûDISHûWILLûSATISFYûMOREûTASTESû'IVENû)NDIASûTRACKû
record, however, it is only a matter of time before the
regulators tinker with the recipe once again.Last week’s deal was all about
buying redemption for the APP
brand, presumably with an eye
on bigger issues in the future.