The European Investment Bank (EIB) didn’t wait long to get the Hong Kong bond market moving in 2001, issuing HK$2.5 billion ($320 million) within minutes of the market opening on January 2 to make it the first deal of the year. The transaction, lead managed by HSBC, was originally sized at HK$2 billion, but later increased by HK$500 million due to strong demand.
The five-year notes were priced at 101.63%, paying a yearly coupon of 6.38%. The bonds were sold to local investors, mainly placed within the treasury and trust departments of banks. The deal became the first of the new millennium (depending on your definition of millennium), since Japan was closed for a holiday and the deal was launched at 9.02am on January 2. The first deals out of London were not launched until eight hours later.
According to Bryan Pascoe, head of syndicate for Asia Pacific at HSBC, external factors in the US make this a good time for borrowers to target the Asian markets. “Given the current conditions following the Federal cut in interest rates, we may see a push to the international markets as borrowers will look to trade before the US slowdown filters through,” he says. “The market is conducive to new issuance right now from Asian borrowers, with Asian investors playing an increasingly significant role. At the same time, the focus on domestic markets will remain strong as long as the local interest rate scenario stays the same.”
These developments should mean the prospects look good for Asian bond issuance, in the short term at least, and Pascoe senses that investors are sensing there is good value to be found in the region. “Investors are looking to get involved at absolute yields for longer dated triple-A paper,” he says. “We’re getting a sense from investors that they want to take advantage of yields before Federal interest rates are cut further.”
EIB’s eagerness to hit the market running suggests that it is likely to retain its status as one of the dominant players in the Hong Kong dollar market in 2001. HSBC arranged HK$4 billion of bonds for the bank in 2000, including a HK$3 billion benchmark deal launched in the first quarter, and has earned a reputation for setting trends in larger, liquid deals.
