Asia capital markets forum: the highlights

Author: Ashley Lee | Published: 27 Nov 2013
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Foreign listings in Asia: Staying competitive

  • For HK IPOs, prospectuses must be substantially complete before they're filed. If they are 95% of the way there rather than 60%, the commenting process will be much faster;
  • HKEx has restructured its listing division to include professionals with accounting, legal and equity research backgrounds;
  • The legal and accounting professionals will focus on the eligibility requirements, while the equity research experts are expected to look more broadly at the company's long-term business plan;
  • Hong Kong depositary receipts need more liquidity to really attract international corporates, although Japanese and North American companies are still interested;
  • While exchanges in the Philippines and Singapore have seen listings this year, it’s unclear whether liquidity is an issue.

The future of Asian high yield

  • This year was a benchmark for high-yield issuance in Asia, with over $22 billion raised. In comparison, the largest amount raised in the high yield market by Asian issuers previously was $13.7 billion in 2011;
  • Private banks are becoming less important in trades - particularly within the larger deals by well-known corporates;
  • However they remain key for certain deals, typically the smaller ones that would be difficult to get off the ground otherwise;
  • Although the high yield market in Asia is maturing, ratings for comparable companies and deals are still lower in Asia than in the US. This is because of undeveloped legal regimes in Asia and therefore uncertainty related to enforcement;
  • While covenants are an important discussion, it's more important to consider the trustworthiness of the management of the issuer - ratings and covenants don't reveal how someone will act when "their backs are up against a wall."

RMB: What's new, what 's next?

  • Panelists expect that the pilot programme for state-owned enterprises (SOEs) to issue dim sum bonds will continue this year;
  • Rather than restricting approvals to central government SOEs only, it's expected that provincial and perhaps even city government-owned companies will receive allocations;
  • Expect to see more from credit enhancement structures for Chinese bonds as real estate companies must tap the offshore market for capital due to onshore regulatory restrictions. The keepwell agreement and equity interest purchase undertaking, as well as the standby letter of credit, will remain important;
  • The convertibility between offshore RMB from Singapore (CNS) and Hong Kong (CNH) isn't yet clear. While there are no legal issues between convertibility, it's an issue of settlement systems;
  • The internationalisation of RMB - as well as the proliferation of RMB centres - is driven by real money and business demand. More trades from China are being settled in RMB, and that's driven the internationalisation of the currency.

Trust IPOs: A new opportunity

  •   Although there is no comparative tax advantage between business trusts and real estate investment trusts (Reits) in Hong Kong, there are more regulatory hurdles associated with Reits;
  • Business trusts are expected to remain more popular in Hong Kong. However, the Financial Services Development Council recently released suggestions aimed at developing Hong Kong’s Reit market;
  • Businesses that are cash generative but capital intensive can list business trusts;
  • Singapore is a popular destination for business trusts. IPOs this year include Asia Pay Television Trust, with more in the pipeline involving toll roads in India and hospital assets;
  • The impact of the tapering of the US Federal Reserve’s monetary policy on business trust and Reit initial public offerings remains unclear.

FOCUS: Philippines

  • Regulators in the Philippines are pushing more listed companies to broaden liquidity and deepen their investor base;
  • Potential policy measures to broaden liquidity include increasing the mandatory free float of listed companies from 10% to 20%;
  • But regulations are vague and based on market norms. Rather than setting clear policies, the regulator approves individual processes, and opinions may vary from person to person;
  • Panelists agreed that regulators in the Philippines are eager to learn about international standards, and are helpful and accessible;
  • Panelists recommended that the Philippines regulators should keep it simple. Rather than focusing on introducing new products, they should look to clarify basic processes for common activities, such as stabilising initial public offerings.

Regulatory capital: A primer

  • Basel III-compliant regulatory capital instruments were introduced because Basel II instruments did not absorb losses as expected during the 2008 financial crisis. Basel II instruments could only absorb losses on the gone-concern basis, and therefore banks could only wind them up before instruments took losses on;
  • Basel III instruments are based on the concept of non-viability and that providers of capital should share losses before a government bail-out;
  • While there have been regulatory capital deals in Asia, key features have differed from transaction to transaction;
  • Deals will differ across Asia as each jurisdiction is implementing Basel III with slightly different regulations;
  • So far all of the deals from Asia have been Regulation S. Counsel are considering the first Rule 144A deal and whether US investors fully understand the risks related to Basel III regulatory capital.

The future of APAC structured finance

  • In Asia, Korea and Australia are the main securitisation markets post-financial crisis. While there are consumer loan and ticket receivables in Korea, Australia’s market is primarily residential mortgage-backed securities;
  • Innovation in China’s securitisation market may be focused on legitimate alternatives to wealth management products, such as Alipay’s recent deal, rather than formal programmes backed by the regulators;
  • Before the financial crisis, Indonesia was a bright spot for securitisation. Recent deals have used onshore structures;
  • Covered bond issuance is expected to increase in Asia, with Singapore and Korea expected to adopt covered bond laws in the next year.