Over in Asia’s booming dollar-bond market, there are two notable absentees: Thailand and the Philippines.
The two countries are missing out on the rush to dollar-denominated debt, instead relying on their domestic fixed-income markets and lending from banks—something that’s unlikely to change anytime soon. Issuance from Thailand and the Philippines combined stands at a paltry $3.7 billion, compared with $15.7 billion out of Indonesia and $10.6 billion from India, according to data compiled by Bloomberg.
The ensuing turmoil born out of Asia’s currency crisis in 1997 lives fresh in the memories of companies looking for capital 20 years later. In those days a far bigger proportion of bonds sold by the likes of Thai firms were in dollars and even the most casual student of the period will remember how that contributed to the collapse in their economies. Now, their lack of participation in the five-year-long boom for debt in the US currency may well be a price worth paying.
“Most of these issuers have been affected by the Asian financial crisis and since have been very conservative in their US dollar-bond issuance,” said Jean-Charles Sambor, London-based deputy head of emerging market fixed income at BNP Paribas Asset Management. “These two countries have a very conservative corporate sector.”
This year the Philippines government is the only issuer out of the nation with a $2-billion offering in January, while Thai borrowers have sold just $1.7 billion. On a net basis—accounting for redemptions—the Philippines is shrinking its dollar-bond pool and Thailand’s is only just in the green this year at $93 million.
Indonesian companies can’t always rely on its domestic banking system and often have a greater need for non-local currency funding. Indonesia is a commodities exporting country and companies there have dollar revenues so it makes sense for them to have greenback liabilities, according to Terence Chia, head of Asia Pacific debt capital markets syndicate at Credit Suisse Group AG.
“The Philippines and Thailand, in particular, have strong local currency bond markets,” said Todd Schubert, head of fixed-income research at Bank of Singapore, the private-banking unit of Oversea-Chinese Banking Corp. “Issuers are able to get big deals done with reasonable tenors. From a political and policy perspective, this is actually preferable because it dampens volatility versus countries that are dependent on the US dollar market for financing.”
Philippine borrowers have been active in the domestic market this year, with peso-bond issuance soaring 63 percent over the same period last year to P878 billion ($17.4 billion), Bloomberg data show. The equivalent for Thai issuers shrank 10 percent to 5.1 trillion baht. Still, the size of the local-currency bond market in Thailand accounts for 81.2 percent of the nation’s GDP, among the highest in Asian economies.
“Thai and Philippine banks have ample dollar liquidity to lend to their top corporates,” said Desmond Soon, head of investment management for Asia ex-Japan at Western Asset Management Co. in Singapore. “Also, most major corporates in these two countries have liquidity and run rather conservative balance sheets.”
Here are some other reflections on Thai and Philippine bond markets:
Banks in the two countries may come to the dollar market opportunistically for senior funding but sub-debt can be easily done onshore, Soon at Western Asset said.
The Thai and Philippine governments have been encouraging local borrowing as they don’t want US dollar volatility on corporate balance sheets, said Ben Sy, head of fixed income, currencies and commodities at JPMorgan’s private-banking unit in Asia.
It took many years for companies of the two countries to deleverage after the Asian crisis and for the countries to develop local bond markets.
Don’t bet on Thai or Philippine issuers tapping the US dollar-market any time soon, said Credit Suisse’s Chia, and Bank of Singapore’s Schubert. “Given the rarity of these issuers in the dollar bond market, investor demand for these issuers will be strong as they seek to diversify their risks,” Chia said.