SOUTHEAST Asian companies are selling the most yen-denominated debt in 17 years and Malayan Banking Bhd. is considering coming back for another helping.
The region’s companies raised ¥104.1 billion ($883 million) of notes in the currency this year, the most since the Asian financial crisis in 1997, data compiled by Bloomberg show. Maybank’s ¥81.1 billion of sales accounts for the bulk of that and the lender said it may sell again next year. The funding has become more attractive as the yield discount for Japan’s benchmark five-year bonds widened 36 basis points in the past year to 148, as the Bank of Japan (BOJ) boosted monetary stimulus while the United States moved toward raising interest rates.
Prime Minister Shinzo Abe has been encouraging emerging- market sovereigns and companies to sell yen debt to open markets for Japan and spur an economy that has slipped into recession. The BOJ’s expansion of stimulus has contributed to a 12- percent plunge in the yen against the dollar in the last three months, while its benchmark interest rate of 0.07 percent forces the nation’s fund managers to seek higher returns offshore.
“With the weakening exchange rate and low interest-rate environment, I expect more foreign corporations to look toward Japan for liquidity,” Rafique Merican, group chief financial officer at Maybank in Kuala Lumpur, said in a November 20 e-mail interview. “We will continue to engage Japanese investors as they become more familiar with Maybank as an organization.”
Rating attraction
MAYBANK, Malaysia’s largest lender, sold yen notes three times this year, most recently issuing five-year debt in August at a coupon of 0.52 percent. Export-Import Bank of Malaysia sold ¥3 billion of bonds due 2019 in April at 0.65 percent and may tap the market again in 2015 as the borrowing costs are attractive, CEO Adissadikin Ali said in a November 10 interview in Kuala Lumpur.
Singapore-based companies make up the rest of Southeast Asian issuance this year. Real-estate investors Ascott REIT MTN Pte. Ltd. and CMT MTN Pte. Ltd. have sold, as have local subsidiaries of Sumitomo Corp. and Mitsui & Co.
Japanese-currency offers will probably continue to be dominated by Malaysian and Singaporean companies next year because the countries’ strong investment-grade ratings make tapping the market easier, according to Nomura Holdings Inc., Japan’s largest brokerage.
Moody’s Investors Service rates Singapore Aaa, its top ranking, and assigns Malaysia its seventh-best grade of A3. Thailand is one notch lower at “Baa1,” while Indonesia and the Philippines are two levels below that on “Baa3,” the lowest investment ranking. The last corporate yen sale from Thailand was in 2008, while Philippine and Indonesian firms haven’t sold since 2002 and
1997, respectively.
‘Very conservative’
“JAPANESE investors are very conservative, as ratings of ‘A’ are needed for a start,” Takaomi Tahara, head of international syndicated debt at Nomura in Tokyo, said in a November 19 phone interview. Investors want to see sovereign sales from Indonesia and the Philippines to set benchmarks before they buy company debt from those nations, he said.
The Philippines last sold yen notes in 2010, while Indonesia’s most recent Samurai sale was in 2012. Authorities are considering another Japanese-currency offer next year, Robert Pakpahan, director general at the debt management office in Jakarta, said last month.
Japan’s near-zero interest rates compare with the US’s Fed funds target of 0.25 percent, which will be increased to 0.5 percent by June 2015, a Bloomberg survey shows.
Overseas borrowers currently pay an average yield of 0.47 percent for Samurai bonds and 2.64 percent globally, according to Bank of America Merrill Lynch indexes. The extra yield investors demand to hold Asian corporate notes over Treasuries has fallen 22 basis points to 253 since reaching a seven-month high on October 17.
‘Significant appetite’
“BECAUSE issuers expect volatility in the US dollar bond market, they are more interested in the Japanese yen,” Nomura’s Tahara said.
A weakening yen makes issuing in the currency more attractive, as it reduces companies’ interest payments. Malaysia’s ringgit has strengthened 9.6 percent against the Japanese currency this year, while the Singapore dollar has gained 8.6 percent. The yen has fallen 11 percent against the greenback in 2014 and will drop a further 1.8 percent by end-2015, the median estimate in a Bloomberg survey shows.
Japanese demand for Southeast Asian debt should remain strong, according to Lee Kok Kwan, chief executive officer of corporate banking at CIMB Group Holdings Bhd, Malaysia’s top debt arranger. Gross domestic product (GDP) in the five major regional economies will increase an average of 5.4 percent in 2015, compared with 4.7 percent this year, the International Monetary Fund estimates.
“Names that are recognizable by Japanese investors will be the main issuers of yen debt,” Kuala Lumpur-based Lee said in a November 21
e-mail interview. “Japanese investors have significant appetite as Asean remains one of the highest GDP growth regions in the world, where credit risks are relatively benign, while offering a yield pickup.”