Upfront
OPINION INTERNATIONAL FINANCING REVIEW ASIASummer heat
T
his summer is proving unusually hot for Asia’s capital
markets – and it’s nothing to do with the record
temperatures in parts of Japan.
Late July is seldom a busy period for Asian bond bankers.
The expat originators and fund managers have decamped to
their villas in Bali or their chateaux in France. Even issuers
are in short supply.
Not so this year, with a cluster of new issues crossing the
tape last week. Investment-grade Asian issuers printed eight
new US dollar bonds, and China’s property sector alone
ADDEDûlVEûHIGH
YIELDûlNANCINGSûnûTHEûBUSIESTûWEEKûFROMûTHEû
sector since April.
Equity markets, too, are busy with a giant international
listing from China Tower poised to trump Xiaomi as the
world’s biggest IPO since 2014.
This rush to market, however, means only one thing.
Issuers are expecting markets to get worse, not better.
Sell in May, go away. It’s a well-trodden ritual in the
capital markets.
7HENûITûCOMESûTOû!SIANûlXEDûINCOME ûBUYERSûHAVEû
been noticeably absent since, well, May. While the selling
appears to have stopped, thanks to an easing of liquidity
conditions in China, there is little to suggest a sustained
rally in August – either in debt or equity.
US President Trump’s constant threats of trade tariffs
and currency wars should keep investors on their toes in
August’s holiday-thinned markets. Further outperformance
in US equities is looking ever harder to justify, and
even China’s latest move to ease onshore liquidity is no
guarantee against further defaults.
August has also proven a historically volatile month in
recent years, with Europe’s sovereign debt crisis causing
havoc in 2011 and China’s stock market collapse rocking
CONlDENCEûINû
For the queue of Asian companies looking to raise capital
in the next few weeks, a prolonged break from the volatility
of the second quarter would be far better than a week on
the beach.India's bond chase
I
ndia is taking another step along the path towards a
vibrant corporate bond market. It needs to get there,
quickly.
The securities regulator’s latest proposal to stimulate
corporate bond issuance is both well thought-out and well
argued, even if the content is unconventional.
3EBIûPLANSûTOûFORCEûBIGûCOMPANIESûTOûMEETûATûLEASTûûOFû
their funding needs in the bond market. In most situations,
DICTATINGûHOWûCOMPANIESûRUNûTHEIRûlNANCESûWOULDûBEû
considered regulatory overreach. But in India, it may not go
far enough.
India desperately needs to relieve the burden on the
overstretched banking system. After being forced to reveal
their bad loans, most of the country’s lenders are in self-
preservation mode, directing their capital towards the
biggest and best-known borrowers rather than smaller,
more productive companies.
The central bank has already taken steps to address the
problem, with additional capital charges for new loans to
the country’s biggest borrowers, but other regulators are
dragging their feet.
Even in the bond market, restrictive investment rules for
insurance and pension managers mean credit is reserved
FORûTHEûTOPûBORROWERSû#LOSEûTOûûOFûALLûISSUANCEûISûRATEDû
ATûLEASTû$OUBLEû! ûANDûONLYûûCOMESûFROMûPRIVATE ûNON
lNANCIALûCORPORATESû)Fû)NDIAûISûTOûGETûITSûBANKSûLENDINGûAGAINû- and get the country growing faster – Sebi’s plans cannot
come soon enough.
4HEûCURRENTûPROPOSALûWOULDûPHASEûINûTHEûûRULEûOVERûAû
couple of years, and would initially apply to companies with
a local rating of Double A or above.
)MPORTANTLY û3EBISûCONSULTATIONûPAPERûmOATSûTHEûIDEAûOFû
extending this requirement to Single A borrowers if the
market can absorb it. Doing so would provide more paper
for yield-hungry mutual funds, deepen the rupee capital
markets and create an alternative market for smaller
borrowers.
That is a worthy ambition for any emerging market –
especially one with a constrained, state-dominated banking
sector. The sooner India’s regulators can get there, the
better.
This rush to market means
issuers are expecting markets
to get worse, not better.