20000411

Emerging Debt-Asian debt recovery seen, Philippines weak

HONG KONG: Asian benchmark bond spreads were tightening on Monday after last week's sharp widening but dealers said much of the near term outlook depends on stability in US asset markets.

Benchmark issues like the Malaysia '09s and the Korea '08s have seen their spreads tighten by around 15 to 20 basis points in a recovery rally that began on Friday.

"The Asian bond market ended off the week with a much better tone with equity markets and swap spreads stabilising and the US corporate bond market tightening by five basis points," said Barclays Capital.

The big exception to the rosier credit picture is the Philippines, where the bid side is rapidly evaporating on a host of negative factors and the prospect of a new supply, although spreads on these issues have also come in sharply from last week's lows.

"No one thinks the Philippines is out of the woods yet," said one senior bond trader at a European investment bank.

"In fact it's just getting worse and worse on the political front," he said.

The Philippine '08 bonds were quoted in Monday trade around a bid spread of 445 over Treasuries compared with about 455 on Thursday.

NEW PHILIPPINE SOVEREIGN SEEN SHORTLY

An official at J.P. Morgan confirmed on Friday that the Philippines has appointed ABN AMRO, Credit Suisse First Boston and J.P. Morgan as lead managers of a 700 million euro bond.

A roadshow for the new deal is being held in Frankfurt, Milan and London this week and pricing could come soon after the marketing period ends with the issue expected to carry a seven- to 10-year maturity.

Lingering credit concerns in the US agency market and the prospect of US dollar swap spreads remaining high could keep Asian debt under pressure for much of the second quarter, according to analysts at ABN AMRO Bank.

"The main constraint on improvement in Asian debt in the second quarter of 2000 remains US financial market uncertainty," the bank said in a note to clients.

"The technical backdrop for Asian bonds remains bearish in the near term with continued volatility in US credit and equity markets," it said.

The bank also pointed to the lack of liquidity in the Asian bond market as hampering a market recovery. "Although Asia is supported by a positive credit story while US corporates are not, the poorer relative liquidity offered by Asian debt is likely to limit Asian spread tightening relative to US high yield spreads," it said.

SINGAPORE POWER SET TO BEGIN ROADSHOW

Government-owned Singapore Power is expected to begin the roadshow for its new $300 million bond issue on Wednesday with pricing set for April 17.

Standard & Poor's have already assigned the deal a top notch "AAA" rating, making it one of the best quality deals available anywhere in Asia.

New issuance has so far gone smoothly in the Asian debt markets this year with some $7.0 billion of new deals launched in the first quarter of 2000 which was higher than the fourth quarter but lower than the same quarter of 1999.

Hong Kong Internet group, Pacific Century CyberWorks (PCCW) raised a massive $22.1 billion in the syndicated loan market for its acquisition of Cable & Wireless.

The figure exceeds the $9.0 billion syndicated loan portion of the US$12 billion bridge loan sought by PCCW for the purchase.

Twenty-seven banks committed at the sub-underwriting level in addition to the coordinating arrangers BOCI Capital, HSBC, BNP and Barclays Capital which are providing US$3 billion of the US$12 billion facility.

Of the $9.0 billion that was syndicated to sub-underwriting banks, $5.4 billion has a one-year maturity, while PCCW has the option of extending the maturity of US$3.6 billion for a further two years. The initial margin is 115 basis points over LIBOR and final allocations will be split pro-rata over the two tranches.

INDIA NOT LOOKING TO DO DEBT ISSUE

The Reserve Bank of India (RBI) said on Saturday it saw several disadvantages of borrowing abroad and was not planning any issues in the near future.

"..for several reasons, it is neither necessary nor desirable at this juncture for Government of India to seek sovereign borrowing in foreign currency in international financial markets, but the issue could be reviewed sometime in future," the deputy governor of the central bank Y.V. Reddy said on Saturday.

India is rated below investment grade by international rating agencies Moody's Investors Service and Standard & Poor's, but both agencies maintain a positive outlook on the rating.-Reuters