Emerging bond funds scrambling for Asian debt in tight market | Reuters

“You have the state-owned enterprises come out with new

issues that price virtually on the curve, the concession they

are giving is virtually zero. But Asia’s swelling pension and mutual fund

industries have also created a huge new demand base at home,

elbowing out the Western funds.

PRICED TO PERFECTION

“This only builds up pent-up demand for later on as people

are delaying investing.”

($1 = 6.2051 Chinese yuan renminbi)

“It is good news for issuers, and as a result the bonds are

usually more allocated to Asian investors for the lower returns

they ask for,” she said.

Allocations in some recent cases were filled almost entirely

within Asia. These are chunky issuances but

they have been extremely well-absorbed by the market,” said Nish

Popat, a fund manager at Neuberger Berman.

“Right now, my feel is whatever is left of Asian issues for

outside investors is between 20-30 percent – tops.”

The downside for fund managers is that companies are able to

minimise or even do away with the yield premium that new bonds

typically pay to lure investors.

Asian companies have stepped in to fill the void, accounting

for almost 60 percent of this year’s emerging corporate bond

sales, having raised $70 billion as of the end of April,

according to BNP Paribas. Japanese pension funds are also

investing more in emerging markets.

“Some years ago the syndicates would come to Europe and the

United States peddling these bonds and no broker would ever

close the book before people in these latitudes had a look,” he

said.

Chinese refiner Sinopec, which raised $6.4 billion in five

tranches last month, paid 3 and 5 basis points respectively over

existing five- and 10-year dollar bonds. That’s up from a 51 percent share last

year and a meagre 17 percent in 2008, BNP says.

A banker at a U.S. China’s recent cut in banks’ reserve

requirements alone was seen unleashing 1 trillion yuan ($160

billion) into the economy and markets.

So far so good. Asia-Pacific pension assets will

hit $6.5 trillion by 2020 and overall assets will reach $16.2

trillion, PwC predicted, more than double their 2012 levels.

These volumes have lifted Asia’s weight with bond investors,

with China toppling Brazil as the biggest component of the CEMBI

Broad and Diversified indexes, the benchmark for most investors

in emerging company debt.

Chinese Times Property’s $280 million deal in

March came from an overflowing book worth $1 billion, with 90

percent of the bids from Asia.

The Hong Kong-based banker said Asian funds, familiar with

local borrowers, were willing to take lower yields.

Meanwhile, Russian companies returning to the market will

likely be welcomed by investors.

One reason is that Chinese, Korean and other local investors

are keen to put cash into dollars as their own currencies weaken

and interest rates fall. bank’s bond syndicate desk in Hong Kong

said Chinese investors were cash-rich now and some deals

marketed recently had been placed within hours.

Greg Saichin, head of emerging debt at Allianz Global

Investors, estimated that 60 to 70 percent of the average new

issue in Asia is snapped up by locals.

LONDON/HONG KONG May 17 Emerging corporate bond

funds searching for debt to buy up in the absence of Russian and

Brazilian borrowers have found themselves jostling with a

growing number of cash-rich Asian investors for new issues from

the region.

(Editing by Hugh Lawson)

“There is still too much money chasing too few bonds,”

Saichin of Allianz said, adding he had passed on many Asian

bonds which offered no yield concessions.

Bonds from Asian companies, largely Chinese, are dominating

the new dollar issue market now that once-prolific Russian and

Latin American borrowers have been shut out by Western sanctions

on Moscow, a corruption scandal at Brazil’s biggest company

Petrobras, weaker commodity prices and fears of a default in

Venezuela.

To compete with local buyers, more and more funds including

his own are opening offices in the region, he said.

“If you are not effectively on the ball with eyes on the

book, by noon you will have missed the bus,” Saichin said

Critics also say investors’ eagerness may be blinding them

to default risk, with coal firm Winsway this month becoming the

third Chinese entity in 2015 to default on offshore bonds.

Asia is already home to huge investors such as South Korea’s

$400 billion National Pension fund and Singapore’s $200 billion

Central Provident fund. For instance last week, Chinese bank CCB took

orders of $7 billion for a $2 billion bond, 88 percent of them

from local buyers.

Reuters has reported that asset managers and banks have been

adding staff in Asia.. But orders for the $2.5

billion five-year issue surpassed $7 billion.

For emerging markets, typically reliant on Western capital,

the rise of a domestic investor base is undoubtedly positive.

In Asia, this is driven by savings pools that are seeing

pension and mutual fund assets grow around 10 percent a year,

according to consultancy PwC

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