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Credit Crunch? Not for Some Asian Companies


As some large U.S. and European companies teeter on the verge of bankruptcy because they could not find the cash to finance their businesses, some Southeast Asian companies seem to be defying the global credit crunch. Corporate bond issuances surged nearly seven-fold since the start of the year.

San Miguel Brewery, the Philippines' largest beer maker, raised 40 billion pesos or $800 million this week by issuing bonds. It was the largest ever such capital raising in the Philippines. More so, it was oversubscribed - meaning there were more investors willing to lend money than the company needed.

San Miguel's successful fund raising is one of several bond issuances by large and established companies in the region since the start of the year - a stark contrast to the frozen credit environment crippling many U.S. and European companies.

In Thailand, companies have so far raised $2 billion through bonds this year. New corporate bond issuances rose nearly seven-fold from January to mid-March.

These companies have been raising funds at home, taking advantage of Asia's excess savings and an appetite for higher yield, less risky investments.

Nattapol Chavalitcheevin, president of the Thai Bond Market Association, says bank deposit interest rates have fallen close to zero, forcing many savers and investors to look for alternatives.

"The saving rate dropped from 0.75 percent to 0.5 percent only," said Nattapol. "So that's why investors are looking for new investment which can earn higher return. So that's why corporate bonds can be issued in the domestic market. Mutual fund companies also set up new funds to invest in corporate bonds because government bond yield is quite low. For example, the yield of a five-year government bond 2.4 percent."

Central banks across Asia have been slashing interest rates to encourage banks to lend money to businesses after the global credit crunch that started last year. But instead of traditional bank borrowing, companies are tapping retail and institutional investors by issuing bonds.

In doing so, companies are essentially borrowing money from a large pool of investors, promising to repay the full amount plus interest after a specific period.

'Safe haven' assets

Banks themselves are looking for these so-called "safe haven" investments.

"I am with one institution managing seven billion baht of cash, and we have a big headache where to put the money," said Narongchai Akrasanee, chairman of Thailand's Export-Import Bank. "We don't know where to put the money to earn some interest for our savings."

Investors in the Thai state-owned energy company PTT's 15 billion baht or $423 million bond last month could earn five percent interest in the first five years. San Miguel Brewery's bond offered interest 250 basis points higher than comparable government bonds.

Analysts say these blue chip companies find it easier to issue bonds because they have established market shares, reliable revenues and high credit rating.

Lee Jong-wha, regional economic integration head of the Manila-based Asian Development Bank said last month that he expects to see an increase in local currency-denominated
bond issuances this year - both from companies and governments.

"Demand for safe haven assets is substantially larger and the yield is low and the decline in inflation expectation will pull in global investors to the region's local currency bond market," said Lee.

The Thai Bond Market Association says local currency corporate bond issuances could reach $7 billion this year, slightly up from last year.

Although the market has been receptive to local companies' borrowings so far, Nattapol says the global economic downturn could slash some companies' revenues and affect their credit rating, making it harder or costlier for them to raise money in the future. Companies in the rapidly slowing export sector, he says, are at risk.

"That makes investors reluctant to invest in corporate bond in the future," said Nattapol. "For this year there are companies [which are] not sure whether in the medium term [they] can maintain their rating or not. Investors who worry about credit risk may take a long time to make decisions to invest in corporate bonds with lower ratings."

While the appetite is there, experts say Asian companies are taking advantage of this window of opportunity to better their financial position for uncertain times ahead.

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