“The largest part of the Asian bid in benchmark deals is from central banks, who like to buy our paper in the three to five-year part of the curve,” Mr Mitchell explains. “They typically invest in government-related paper, but are also looking to pick up some additional spread, while staying mostly with Triple A rated assets.”
Rabobank is the only Triple A rated private sector commercial bank in the world, and so has a good story to tell to investors and, rather than roadshowing individual deals, the bank prefers to hold regular meetings with investors. “We have roadshows that go through the region on average once a year, where senior executives and investor relations people are available to update investors on the Rabobank credit,” says Mr Mitchell.
Supranational issues
The European Investment Bank (EIB) is one of the largest supranational issuers. In 2004, it borrowed more than €50bn on the global capitals markets. It borrows in a dozen currencies, though the three core currencies in 2004 were dollars (36%) euros (35%) and sterling (19%).
The EIB global bonds in both dollars and euros are heavily marketed in Asia. For example, the three-year dollar global bond launched early in 2004 was 50% placed in Asia. The investor base was similar to that for KfW, comprising mainly central banks.
“Demand from Asia for deals such as the KfW global bonds is largely central bank driven, at least in terms of the large ticket orders,” says Bryan Pascoe, head of debt syndicate, Asia Pacific, at HSBC in Hong Kong. “You do also see orders from insurance companies, commercial banks or in some cases private banks and asset managers, but their ticket sizes tend to be much smaller.
“The central banks are seeing significant increases in reserves on a quarterly basis that need to be invested and, depending on their view of the market and their preference for credit or maturity, if a deal hits the sweet spot they can buy in significant size,” says Mr Pascoe. “Most can buy out to 10 years and a few can go out further than that, but five years and in is where we see most interest. For a five-year dollar global deal, distribution of anything between 45% and 65% into Asian accounts is the market norm.
“As reserves have increased and the view on the dollar has become less constructive, central banks have been looking to buy relatively more euros than dollars as their portfolios have continued to grow. But so far it has been a case of adding more euro assets to the portfolio, rather than any concerted selling of dollar assets. Dollar paper continues to hold sway in the Asian time-zone, not least because of its superior liquidity, although this liquidity differential is slowly narrowing over time,” he says.
Inflation-adjusted offerings
Last year, the EIB tapped into the growing demand for inflation-adjusted bonds as an asset class with its first inflation-linked yen offering, which was the first from an issuer other than the Japanese government. And the Japanese yen market continues to be an attractive source of funding for European issuers, especially highly rated commercial banks and public sector lenders, which are favoured by Japanese investors.
In February, the triple-A rated Dutch public sector bank BNG increased by ¥25bn ($231m) its bonds due September 2008. The original offering was made in September 2003 and the new bonds will be fungible with the original ¥50bn series. The latest offering was led by Mizuho International.
Investors in jurisdictions such as China, Hong Kong and Singapore are also targeted for a slice of Australian dollar offerings, such as the deal in November last year from SNS bank of the Netherlands. SNS is an A-rated bank and, with an annual funding requirement of about €10bn, it has been paying a lot of attention to building up an investor base in Asia. In 2003, it launched a $1bn floating rate note offering and a marketing effort in the Far East helped to place 35% of the paper in the region. It also recently did its first Kangaroo bond.
“It was the inaugural transaction under the medium-term note programme that we set up last year and we sold about 20% in the Asian region outside of Australia,” says Bart Toering, head of capital markets at SNS Bank. The deal was done in two tranches, with A$325m-worth ($250m) of three-year floating rate notes and A$225m-worth of five-year fixed-rate notes.
“We have a sizeable investor base in Asia and, although funding conditions in Europe are very good, we still try to spend time in Asia to create more name recognition with new investors, and give an update on our credit to existing investors,” says Mr Toering.
The November 2004 launch of the SNS debut Kangaroo bond was supported by an extensive roadshow, with one day each in Hong Kong, Singapore, Melbourne, Brisbane and Sydney, immediately followed by book-building and launch to maintain optimal momentum. The bookrunners on the deal were National Australia Bank and UBS Investment Bank.
Intensive promotional efforts
The SNS roadshow is a good illustration of the intensive effort that issuers are making to familiarise Asian investors with their credits, and build an investor base. In Hong Kong, there was an investor presentation to 15 banks, including Bank of China, Wing Lung Bank, Bank of Communications and China Construction Bank.
In Singapore, there was a one-on-one meeting with Government of Singapore Investment Corporation (GIC), something that has become obligatory for most European bond issuers these days. That was followed by a presentation to banks, including Dexia Singapore, OCBC and Bank of Taiwan.
The investor in Melbourne included Alliance Capital, Citigroup Asset Management and Portfolio Partners. The Brisbane visit was devoted to one-on-one meetings with Queensland Treasury Corporation, Queensland Investment Corporation, Bank of Queensland and Suncorp Metway Investment Management.
And the final day in Sydney, there were one-on-one meetings with Deutsche Asset Management and Tyndall Investment Management, plus an investor presentation to a large number of potential investors, including Macquarie Funds, Société Générale and fund managers Perpetual.
Issuers will recognise the hectic five-cities-in-five-days schedule as all too familiar but such a marketing effort is a prerequisite for private sector issuers that are trying to build up a following in Asia.
Repeat issuers with established programmes such as KfW or Agence France Tresor no longer need roadshows for individual deals, although there was a dedicated roadshow for the euro benchmark bond to start the programme off in 2001.
Nevertheless, even if individual roadshows are not required, a significant amount of time needs to be spent visiting the region. In March, Agence France Tresor representatives were in China meeting with central bank officials and with Chinese commercial banks. Regular issuers increasingly visit cities such as Seoul and Manila, where the Central Bank of the Philippines has become a significant buyer. Bond issuers also get to meet investors on the international conference circuit.
The provision of foreign language investor information has become critical – the Agence France Tresor website has both Japanese and Chinese language versions, for example.
Despite of the rush to sell bonds in Asia, issuers stress that the dependence on the investor base should not be exaggerated and that eurozone and US investors remain crucial.
In particular, they point out that for very long tenors the demand from Asia remains muted. For example, in February, Agence France Tresor did its first ever offering of 50-year, euro-denominated OATs. Bankers say that although the deal was well received, only 1% was placed in Asia. Similarly, bankers report that a recent 30-year dollar offering from the World Bank had almost no Asian participation.
Whether that will change in the coming years, allowing European issuers to issue long tenors denominated in euros directly into Asia, remains one of the big unanswered questions on the global capital markets.
Dollar holdings
The vast dollar holdings of the central banks mean that they are anxious not to talk down the dollar because if it fails to recover in value, it will have a highly negative impact upon their reserves. Thus Asian central banks, which together have about $2500bn at their disposal, have so far been adding euro assets while remaining primarily dollar-based buyers.
If that strategy were to change significantly, then the investor base for European issuers selling euro-denominated bonds would deepen significantly, making conditions for European borrowers even better than they are at the moment.
