Billionaire Krishnan Seen Reviving Dollar Issues: Asean Credit

Southeast Asian companies are preparing to resume dollar bond sales next month, after the slowest issuance in two years, betting the Federal Reserve will provide clarity on plans to taper stimulus.

Bumi Armada Bhd. (BAB), a Kuala Lumpur-based oilfield services provider controlled by billionaire T. Ananda Krishnan, announced on Aug. 13 it will issue up to $1.5 billion of global notes and AMMB Holdings Bhd. (AMM), Malaysia’s fifth-largest lender, said in July it will sell as much as $2 billion. The yield on 10-year Treasuries (USGG10YR) rose 84 basis points to 2.77 percent since May 21, the day before the Fed said it could scale back debt purchases.

Corporates from Southeast Asia have sold $1.2 billion of dollar bonds since the end of June, set for the worst quarter since September 2011, after selling $28.7 billion in the first half, data compiled by Bloomberg show. Mixed messages from the Fed’s Open Market Committee have seen the extra yield investors demand to hold Asian company notes over Treasuries fluctuate from 2013’s peak of 330 basis points on June 24 to 285 on July 11 and to 311 on Aug. 29, according to JPMorgan Chase & Co.’s Asia Credit Index.

“With the FOMC meeting scheduled for Sept. 17 and 18, all eyes will be focusing on statements, which may provide some clarity on the tapering,” Tengku Zafrul Tengku Abdul Aziz, chief executive officer at Maybank Kim Eng Holdings Ltd., a unit of Malaysia’s largest bank, said in an interview yesterday. “We expect the dollar market to remain benign ahead of the FOMC sitting, and any pickup of dollar activities may only happen after that.”

Flexible Program

The Fed will begin to slow its bond purchases at the Sept. 17-18 meeting, according to 65 percent of economists surveyed by Bloomberg this month. The U.S. central bank is expected to end the program, known as quantitative easing, by June of next year, according to the survey.

Corporate and sovereign dollar securities in Asia have lost 0.8 percent this quarter, after dropping 4.3 percent in the previous three months, the biggest decline since December 2008, according to the JACI Composite Total Return index.

Krishnan’s Bumi Armada, the world’s fifth-largest floating production, storage and offloading operator, and AMMB will sell debt under a euro medium-term note program, which gives issuers the flexibility to access foreign markets continuously.

“As long as there’s demand, issuers will tap the market,” Thomas Meow, head of credit markets and banking at Kuala Lumpur-based CIMB Investment Bank Bhd., Southeast Asia’s second-largest underwriter of company debt this year, said in an Aug. 27 interview. “We see a window of opportunity for dollar bond sales from September. But the real pick-up will happen next year as the market needs more time to stabilize.”

Indonesian Measures

International Container Terminal Services Inc. (ICT), the Philippines’ largest port operator, plans to issue global notes due 2025 in exchange for securities maturing in 2020, according to a filing with the Singapore stock exchange on Aug. 23.

Indonesia is watching the market for a “window of opportunity” to offer dollar sukuk, Dahlan Siamat, Islamic financing director at the Finance Ministry’s debt management office in Jakarta, said in a mobile-phone text message on Aug. 28. The sale may be “close to last year’s size,” which was $1 billion, he said last week.

Bank Indonesia increased its benchmark interest rate by half a percentage point yesterday in an unscheduled move and signed an extended swap deal with the Bank of Japan valued at $12 billion, which will allow the two monetary authorities to borrow from each other’s foreign-exchange reserves.

Default Swaps

The measures were aimed at shoring up the rupiah, which fell 9.1 percent to 10,920 per dollar this quarter, according to prices from local banks. That outpaced a 3.7 percent drop in the ringgit to 3.2834, a 3.4 percent decline in the baht to 32.13 and a 3.1 percent loss for the Philippine peso to 44.605.

Five-year credit-default swaps to insure Indonesian bonds against non-payment fell five basis points, or 0.05 percentage point, to 270 in the first four days of the week, according to data provider CMA. That compares with gains of one basis point to 152 in Thailand, and five to 145 in the Philippines, while Malaysia was unchanged at 150.

“Investors and issuers are likely to wait until there is more clarity around the Fed’s tapering timetable,” Raj Malhotra, the Singapore-based head of debt capital markets for Southeast Asia at Nomura Holdings Inc., Japan’s largest brokerage, said in a Aug. 28 e-mail interview. “In the meantime, rates remain choppy.”

Opportunity Taking

The yield premium on Malaysian corporate notes over Treasuries reached 2013’s peak on June 24 after Fed Chairman Ben S. Bernanke reaffirmed the week before that bond buying could be reduced this year and a credit crunch in China deterred risk-taking. The gap narrowed 32 basis points to 220 since then, while a similar spread in Thailand decreased 0.18 percentage point to 224 and one in the Philippines fell 29 basis points to 231, according to JPMorgan Asia Credit blended spread indexes.

In Indonesia, which posted a record current-account deficit in the second quarter, the difference widened 39 basis points to 409 over the same period.

“I think this is going to be a year where you get a lot of opportunity-taking activities as and when the windows open or close,” Leon Koay, head of global markets at Kuala Lumpur-based Standard Chartered Bank Malaysia Bhd., said in an Aug. 29 interview. “We are very comfortable with our pipeline” of dollar bonds, he said.

To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; Elffie Chew in Kuala Lumpur at echew16@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net

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