Upfront
OPINION INTERNATIONAL FINANCING REVIEW ASIAShifting sovereigns
T
here is something ironic about the impact of rising
US Treasury yields on Asian bonds. Instead of
triggering a sell-off by reminding investors that rates
are heading higher, the move has instead helped Asian
issuers price at record-low spreads over US government
bonds.
The Republic of the Philippines sold a US$2bn 10-year
bond on Thursday at 37.8bp over Treasuries, its tightest
spread on any new US dollar issue. That is no mean feat for
a Triple B rated sovereign, especially when compared with
the 135bp spread for higher-rated Mexico just two weeks
earlier.
Similarly, sticky demand for China’s recently issued US
DOLLARûSOVEREIGNûBONDSûPUSHEDûTHEûlVE
YEARûNOTESûINSIDEû
Treasuries on one measure, with the November 2022s
offered at 2bp below US Treasuries at one point last week.
The unusual pricing underlines the depth of demand
FORûHIGH
QUALITYû!SIANûPAPERû)TûALSOûCONlRMSûTHATû!SIANû
investors are less sensitive to rates than their global peers,
instead happy to buy and hold based on absolute yield.
This is good news for Asian issuers, who will be hoping
that their access to low-cost, long-term funding remains
UNIMPAIREDûASûTHEûSHIFTûINû53ûINmATIONûEXPECTATIONSûPUSHESû
Treasuries higher.
Granted, China and the Philippines have strong technical
factors on their side. China has only sold sovereign bonds
in US dollars twice in the last 14 years, and has a large pool
of renminbi-based investors who are looking to diversify
into dollar assets. The Philippines, too, has a strong local bid
and has been scaling back its use of US dollar debt in recent
years. It also used most of the proceeds to buy back existing
bonds.
More fundamentally, the pricing data support the idea
that the centre of global economic power is shifting east. If
China’s vision becomes a reality, the US dollar’s days as the
global reserve currency are already numbered.
One day, the US will be issuing bonds in renminbi. And if
recent events are any guide, it will be paying a hefty spread
over Chinese government bonds for the privilege.Solving for SoftBank
A
US$18bn listing of SoftBank Group’s Japanese
mobile phone unit is set to be this year’s hottest
ticket among equity underwriters, but a deal of that
size may be far less exciting for investors.
SoftBank Group said last week an IPO was one of the
options on the table, responding to a Nikkei report that
THEûGROUPûPLANNEDûTOûmOATûTHEûPHONEûBUSINESSûINû*APANûANDû
overseas.
It looks a logical solution for an ambitious, cash-
hungry group that has become far more than a Japanese
communications business, and investors responded well,
pushing its stock up 2.8% over the course of last week.
SoftBank Group is arguably undervalued, with a high
debt burden and holding company structure detracting
from the sum of its parts: its stake in Alibaba alone is worth
an extraordinary US$46bn more than its current US$92bn
market cap. Doubtless the former Deutsche Bank executives
who now work there – including former trading head Colin
Fan – will be looking at some creative ways to unlock value.
But a spin-off of SoftBank Corp, the local phone unit,
looks far less exciting than the headlines usually associated
with Masayoshi Son’s technology empire. While the
group is pushing into bold new frontiers – most recently
BECOMINGûTHEûBIGGESTûSHAREHOLDERûINûRIDE
SHARINGûlRMû5BERû- SoftBank Corp operates in the mature Japanese mobile
phone market.
That makes the IPO a low-growth, income play rather
than a new-economy blockbuster - closer in style to a
Japan Post than another Alibaba. Stable, cash-generating
businesses have real appeal in Japan, but SoftBank already
has two bigger telecom rivals and may be facing more
competition.
The deal will need to entice overseas investors to hit its
TARGETSû4HEû.IKKEIûREPORTEDûPLANSûTOûmOATûAûûSTAKEûLATERû
this year, below the 35% minimum for a purely domestic
IPO, making a dual listing the most likely scenario.
A separate listing would allow investors to choose
between a pure-play telco and a far riskier investment
holding company. Winning a high valuation for both,
however, will be a delicate marketing exercise.
4HEûUNUSUALûPRICINGûCONlRMSû
that Asian investors are
less sensitive to rates than
their global peers