Are volumes likely to be lower this year?
Tao: First of all, compare last year's volume to the year before and it was a 10% drop. And I really don't think there will be a substantial pick-up in loan volume this year vis-à-vis last year. My hope is that intra-Asian M&A activities may drive volumes.
Will there be a lot of sovereign borrowing?
There may be more sovereign activity this year. Thailand was rumoured, for example.
A lot of countries have rebuilt their foreign exchange reserves and feel they are in a position to source some financing at pretty good rates.
Is the India sovereign deal going to happen?
It's going to be interesting. $2.5 billion is probably too big for the loan market; and if you compare India with a country of similar credit quality, such as the Philippines, you see a tremendous gap between the pricing.
Some Indian officials have indicated they might do a domestic deal instead, haven't they?
Then again, it is a matter of size. They couldn't do $2.5 billion in the domestic market.
There is a good opportunity to do something in the bond market but they may have to pay up compared to the loan market.
How much more costly is the bond market?
A good example is if you look at some of the Hong Kong corporates that have tapped the yankee market for long term financing and also the loan market. The tenor is not comparable, but as a general observation, there is a 40-50bp spread in favour of doing a loan.
Are margins still compressing?
In my view, there is no more room for tightening in Hong Kong or Korea. In fact, you have seen an uptick in pricing in both these markets.
The Philippines does not show a clear trend, but elsewhere there could be further tightening, because there are so few assets available. When a good name comes out in South Asia, you can price it quite tight.
But in North Asia I don't see any more downward pressure.
Are Chinese banks still a big influence on margins?
Very much so. They are still very liquid. Not only for domestic transactions, but nowadays also for offshore transactions. You have seen them get involved in Korean bank and corporate deals.
Are they getting involved on the credit derivatives side?
I see them more in the secondary loan purchases area. They have been buying European assets in the secondary market. They see that as a nice way to get some yield pick-up. If you look at similarly-rated credits in Asia versus Europe, you can get some pick up by buying European assets.
In terms of growth, are you optimistic that the China loan market will be the key area?
The Chinese market will continue to be quite active - both in terms of domestic companies, and those investing from Taiwan and Korea into China for plant expansion. That will be the centre of the plate for North Asia as far as financing activities are concerned.
The Hong Kong market will continue to be very slow, although there may be privatization of subsidiaries by conglomerates - buying assets at below book value.
