ONE OF THE great pleasures of covering Asia’s G3 offshore bond markets over the years has been reporting on the comically competitive streak among the region’s issuers. Over the past decade or so this phenomenon has been most often manifested by – no surprise here – Asia’s most frequent, investment-grade issuers. And mainly South Korean ones.
It was always a delight to watch a South Korean policy bank printing at the five-year point in dollars only to watch its arch rival government-owned peer hit the market in identical format just days later to best its rival’s term funding rate by a few basis points. KDB is the latest one to take things too far, with emotions running especially high after this month’s US dollar print tumbled in secondary.
Still, despite some threatening language, I believe nobody was ever physically hurt in the process, something of a miracle if the celebratory drinks were held in the bars of Seoul’s notorious Itaewon entertainment district.
Over the years, whether it was in covering the syndicated loan or public bond markets in Asia, I heard many a South Korean issuer state to me explicitly that the timing of their issuance was geared entirely around beating the price set by their nearest rival.
NOW THAT ASIA’S offshore primary public bond market is so commoditised, it’s nice to have an entertaining sideshow involving competitive issuers. So please allow me to issue a call to arms in this column to some of Asia’s biggest financial rivalries.
Hong Kong last week issued its debut in the offshore public sukuk market that was priced at a spread around 50% inside the like-tenor debt of uber high-grade regional peer, Singapore’s sovereign wealth fund Temasek Holdings in spread terms. How cheeky was that pricing call?
Hong Kong, or the Special Administrative Region priced a US$1bn five-year last Thursday at a razor-thin 23bp over US Treasuries, while at the same time Temasek’s due 2019s were bid at Treasuries plus 47bp.
That really was a cheeky piece of execution and the near-25bp pricing through Temasek’s seasoned curve can’t quite be explained by credit fundamentals – particularly as Hong Kong goes through the upheaval of debate and accompanying civil unrest about its method of choosing the public legislature.
Universal democratic suffrage is a long way off in Hong Kong and probably a pipe dream as Beijing consolidates its grip on power. But if anything that unusually fraught background would have made you imagine that Hong Kong should have offered a yield pick-up to its Triple A rated regional peer Temasek.
You may argue that the relatively deal starved Islamic bond market was always going to bid up any rare high-rated sovereign paper that came its way, particularly given that this deal is eligible in relation to Basel III liquidity coverage ratio strictures. And also after an exhaustive global dog and pony show that comprised presentations in Riyadh, Dubai, Abu Dhabi, Doha, Kuala Lumpur, Hong Kong, Singapore and New York, there was hardly a Sharia money investor left unpitched. A shoo-in, if ever there was one.
Tellingly, sovereign wealth funds and central banks bought 30% of the paper, while conventional real money remained the rather bewildering cornerstone investor – as it usually does in Islamic fixed income. It ticked the boxes of those deeply conservative money managers and frankly speaking the deal never really looked in the least vulnerable, neither on paper nor during execution.
Temasek should aim to regain Singapore’s sukuk mojo by repricing the sovereign wealth fund’s curve
BUT IT DID open a delicious avenue of competition. Yes folks, I’m hoping for a bit of beggar-thy-neighbour competition in this increasingly dull primary space. And it’s not just about the pricing, although that is the where the crux of the matter will ultimately lie if Temasek decides to indulge in a bit of “Korean behaviour”.
Hong Kong and Singapore have for the last few years been squaring up to each other in the hope of hosting Asia’s most vibrant sukuk bond market, both primary and secondary. And having printed Asia’s highest quality pure sovereign sukuk benchmark, Hong Kong will surely have enhanced its chops in this regard.
So come on then Singapore, get your skates on! Provide us some of that old-fashioned mendacity and raw competitiveness that used to give so many pitch meetings and lunches in the five-star eateries of Asia’s financial capitals their essential adrenalin.
Temasek should aim to regain Singapore’s sukuk mojo by repricing the sovereign wealth fund’s curve, hopefully in headline-grabbing fashion. The US dollar rates markets are sufficiently benign to allow this as is sukuk market liquidity. The LCR issue is also sufficiently buzzy to allow Temasek to pull off a blockbuster.
I do hope the good folk at Temasek’s funding department hear my call to action. For goodness sake, without a little bit of old-fashioned issuer competitiveness the Asia G3 public market is in danger of turning into a printing press, with all the moribund features a piece of machinery possesses. Give us something to talk about, involving a good dose of Schadenfreude.
Over to you, Singapore.
