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Creating an Efficient Asian  Bond Market Presented by Rafael Consing Head of Debt Finance , South East Asia Session III - ...
Introduction <ul><li>The Asian Bid – proves Asian demand exists and that work is needed on the supply side </li></ul><ul><...
The Asian Bid <ul><li>Growing foreign exchange reserves and excess liquidity in the banking sector has resulted in the eme...
Asian Bond Market Already Exists <ul><li>Arguably an Asian Bond Market already exists, through the Asian sub-sector of the...
The Asian International Bond Market Asian Investors Asian Issuers Internationally Recognised Credit Rating Adoption of Int...
Asian G3 Bond Market –  Improving the Foundations <ul><li>Network of dealers </li></ul>Commitment to issuance of annual be...
What about Asia’s domestic markets? <ul><li>Asia’s domestic markets are too diverse to be considered a ‘Regional’ market <...
Asian Regional Market –  Revisiting the Prerequisites Efficient Domestic Bond Market Prerequisites Foundations Result Issu...
Critical Issues for Consideration - Government Sponsorship <ul><li>Unequivocal government support  </li></ul><ul><li>Gover...
Critical Issues for Consideration - Issuer Base <ul><li>Expansion of the issuer base a key deliverable </li></ul><ul><ul><...
Critical Issues for Consideration - Investor Base <ul><li>Extension of the Investor Base another key deliverable </li></ul...
Critical Issues for Consideration - Regulatory Framework <ul><li>Develop domestic markets towards common standards with th...
Conclusion <ul><li>The Asian Bid – proves Asian demand exists  </li></ul><ul><li>An Asian G3 bond is a sub-sector of the I...
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Creating an Efficient Asian Bond Market

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Creating an Efficient Asian Bond Market

  1. 1. Creating an Efficient Asian Bond Market Presented by Rafael Consing Head of Debt Finance , South East Asia Session III - Creating Asian Bond Markets: Necessity and Roadmap 15th PECC General Meeting Brunei Darussalam 1 September 2003
  2. 2. Introduction <ul><li>The Asian Bid – proves Asian demand exists and that work is needed on the supply side </li></ul><ul><li>An Asian bond market already exists – Asian sub-sector of the International market </li></ul><ul><li>Asia’s local currency markets - what needs to be done to develop them into a regional market? Re-visiting the prerequisites of an efficient bond market </li></ul><ul><ul><li>Government Sponsorship </li></ul></ul><ul><ul><li>Issuer Base </li></ul></ul><ul><ul><li>Investor Base </li></ul></ul><ul><ul><li>Legal and documentation framework </li></ul></ul>
  3. 3. The Asian Bid <ul><li>Growing foreign exchange reserves and excess liquidity in the banking sector has resulted in the emergence of the Asian Bid </li></ul><ul><li>But has the Asian Bid resulted in an Asian bond market? </li></ul>Asian Foreign Currency Reserves (US$ bn) 1996-2002 Source: HSBC
  4. 4. Asian Bond Market Already Exists <ul><li>Arguably an Asian Bond Market already exists, through the Asian sub-sector of the international bond market </li></ul>Distribution of fixed rate US$ Asian (ex-Japan) Issues in 2003 ytd Source: HSBC, as at August 1st, 2003 Asian Bonds: An Asset Class of Their Own ADBI, EMBI and US Corporate Bond Index
  5. 5. The Asian International Bond Market Asian Investors Asian Issuers Internationally Recognised Credit Rating Adoption of International Law Liquidity Standardisation of Documentation SEC Registered / 144A / Reg S Eurobond Tax Neutral Accepted Clearing System (DTC / Euroclear) Eurobonds Global Bonds
  6. 6. Asian G3 Bond Market – Improving the Foundations <ul><li>Network of dealers </li></ul>Commitment to issuance of annual benchmarks Link with international clearing houses Encourage development of derivatives markets Commitment to transparency Introduction of new products / structures Establishment of Intermediaries Creation of Benchmarks Clearing and Settlement Procedures Hedging Availability Credit Awareness Full range of debt structures
  7. 7. What about Asia’s domestic markets? <ul><li>Asia’s domestic markets are too diverse to be considered a ‘Regional’ market </li></ul><ul><li>Clear need to direct development away from divergence and towards convergence </li></ul><ul><li>Domestic bond market growth driven by liquidity and government initiatives </li></ul>Source: Thomson Financial & HSBC G3 ex-JPAU, incl. Samurai & Yankee; Local Currency ex-JPAU, incl. CDs Asian Debt Issuance - G3 Versus Local
  8. 8. Asian Regional Market – Revisiting the Prerequisites Efficient Domestic Bond Market Prerequisites Foundations Result Issuer Base Government Sponsorship Investor Base Legal / Documentation Framework Establishment of Intermediaries Creation of Benchmarks Clearing and Settlement Procedures Hedging Availability Credit Awareness Full range of debt structures
  9. 9. Critical Issues for Consideration - Government Sponsorship <ul><li>Unequivocal government support </li></ul><ul><li>Governments to prove the viability of the market, </li></ul><ul><ul><li>Regulators </li></ul></ul><ul><ul><li>Issuers </li></ul></ul><ul><ul><li>Investors </li></ul></ul><ul><li>Decisions of the authorities required to create an environment friendly to the development of a regional market </li></ul><ul><li>Government influence on each of the building blocks through changes to existing laws and regulations and the creation of new ones </li></ul>Issuer Base Government Sponsorship Investor Base Legal / Documentation Framework
  10. 10. Critical Issues for Consideration - Issuer Base <ul><li>Expansion of the issuer base a key deliverable </li></ul><ul><ul><li>Diversified issuer base delivers more investment options to the investor base </li></ul></ul><ul><li>Regulations to encourage issuance from broad range of issuers </li></ul><ul><ul><li>Foreign issuers can fill a gap in the credit curve where local entities are absent </li></ul></ul><ul><ul><li>Removal of barriers and creation of incentives to encourage issuance </li></ul></ul><ul><li>Governments have the ability to influence the behavior of both domestic and foreign issuers </li></ul>Issuer Base Government Sponsorship Investor Base Legal / Documentation Framework
  11. 11. Critical Issues for Consideration - Investor Base <ul><li>Extension of the Investor Base another key deliverable </li></ul><ul><ul><li>Investor base no longer confined to the domestic market </li></ul></ul><ul><ul><li>Potential to greatly increase market liquidity as well as diversify the investor base by sector </li></ul></ul><ul><li>Government agencies should be encouraged to broaden their investment criteria to include local currencies </li></ul><ul><li>While outside funds are desirable, lessons learned from the financial crisis not to be ignored </li></ul><ul><li>Once again, Governments have control over the accessibility to their domestic markets </li></ul>Issuer Base Government Sponsorship Investor Base Legal / Documentation Framework
  12. 12. Critical Issues for Consideration - Regulatory Framework <ul><li>Develop domestic markets towards common standards with the ultimate goal of a common market </li></ul><ul><li>Best international market practice (IPMA) covering market conventions such as disclosure and new issue procedures </li></ul><ul><ul><li>Delivers greater confidence in the marketplace </li></ul></ul><ul><ul><li>Consistent with the considerable work that has gone into developing the domestic markets </li></ul></ul><ul><li>While a common regulator may not be feasible, a mutually accepted ‘court of arbitration’ should be established with a final say of disputes </li></ul>Issuer Base Government Sponsorship Investor Base Legal / Documentation Framework
  13. 13. Conclusion <ul><li>The Asian Bid – proves Asian demand exists </li></ul><ul><li>An Asian G3 bond is a sub-sector of the International bond market </li></ul><ul><li>Asia’s local currency markets need to converge, before a true regional market can develop </li></ul>

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