As some large U.S. and European companies teeter on the verge of
bankruptcy because they could not find the cash to finance their
businesses, some Southeast Asian companies seem to be defying the
global credit crunch. Corporate bond issuances surged nearly seven-fold since the start of
the year.
San Miguel Brewery, the Philippines' largest beer
maker, raised 40 billion pesos or $800 million this week by issuing
bonds. It was the largest ever such capital raising in the Philippines.
More so, it was oversubscribed - meaning there were more investors
willing to lend money than the company needed.
San Miguel's
successful fund raising is one of several bond issuances by large and
established companies in the region since the start of the year - a
stark contrast to the frozen credit environment crippling many U.S. and
European companies.
In Thailand, companies have so far raised
$2 billion through bonds this year. New corporate bond issuances rose
nearly seven-fold from January to mid-March.
These companies
have been raising funds at home, taking advantage of Asia's excess
savings and an appetite for higher yield, less risky investments.
Nattapol
Chavalitcheevin, president of the Thai Bond Market Association, says
bank deposit interest rates have fallen close to zero, forcing many
savers and investors to look for alternatives.
"The saving rate
dropped from 0.75 percent to 0.5 percent only," said Nattapol. "So
that's why investors are looking for new investment which can earn
higher return. So that's why corporate bonds can be issued in the
domestic market. Mutual fund companies also set up new funds to invest
in corporate bonds because government bond yield is quite low. For
example, the yield of a five-year government bond 2.4 percent."
Central
banks across Asia have been slashing interest rates to encourage banks
to lend money to businesses after the global credit crunch that started
last year. But instead of traditional bank borrowing, companies are
tapping retail and institutional investors by issuing bonds.
In
doing so, companies are essentially borrowing money from a large pool
of investors, promising to repay the full amount plus interest after a
specific period.
'Safe haven' assets
Banks themselves are looking for these
so-called "safe haven" investments.
"I am with one institution
managing seven billion baht of cash, and we have a big headache where
to put the money," said Narongchai Akrasanee, chairman of Thailand's
Export-Import Bank. "We don't know where to put the money to earn some
interest for our savings."
Investors in the Thai state-owned
energy company PTT's 15 billion baht or $423 million bond last month
could earn five percent interest in the first five years. San Miguel
Brewery's bond offered interest 250 basis points higher than comparable
government bonds.
Analysts say these blue chip companies find
it easier to issue bonds because they have established market shares,
reliable revenues and high credit rating.
Lee Jong-wha,
regional economic integration head of the Manila-based Asian
Development Bank said last month that he expects to see an increase in
local currency-denominated
bond issuances this year - both from companies and governments.
"Demand
for safe haven assets is substantially larger and the yield is low and
the decline in inflation expectation will pull in global investors to
the region's local currency bond market," said Lee.
The Thai
Bond Market Association says local currency corporate bond issuances
could reach $7 billion this year, slightly up from last year.
Although
the market has been receptive to local companies' borrowings so far,
Nattapol says the global economic downturn could slash some companies'
revenues and affect their credit rating, making it harder or costlier
for them to raise money in the future. Companies in the rapidly slowing
export sector, he says, are at risk.
"That makes investors
reluctant to invest in corporate bond in the future," said Nattapol.
"For this year there are companies [which are] not sure whether in the
medium term [they] can maintain their rating or not. Investors who
worry about credit risk may take a long time to make decisions to
invest in corporate bonds with lower ratings."
While the
appetite is there, experts say Asian companies are taking advantage of
this window of opportunity to better their financial position for
uncertain times ahead.
