ASEAN and South Asia Debt Capital Markets: 2019 and beyond
Pallavi Gopinath Aney
Managing Partner, Ginting & Reksodiputro in association with Allen & Overy
Ho Chi Minh City
Ho Chi Minh City
13 November 2019
2020 expected to be a spotlight year for ASEAN and South Asia Debt Capital Markets
2019 has been a busy year for the A&O ASEAN and South Asia Debt Capital Markets teams. With the arrival of two new partners, Pallavi Gopinath Aney and Felipe Duque, and the promotion of Aloysius Tan to partnership in Singapore, our practice is thriving. Over the past 12 months we have advised on numerous market-leading and complex transactions, snapshots of which we highlight in more detail below. Looking to 2020, we also highlight below some of the key debt trends that we are seeing in markets around the region.
Indonesia: President Jokowi’s new cabinet will bring much-needed regulatory clarity
The sovereign and state-owned enterprises continue to be the predominant source of offshore bond issues in Indonesia. So far in 2019, A&O has acted on deals worth approximately USD4.4 billion by these entities. We represented the arrangers and dealers on Bank Mandiri’s EMTN programme establishment and drawdown in April, Pertamina’s GMTN programme update and drawdowns in July and, more recently, the underwriters on SEC-registered shelf takedowns by the Republic of Indonesia. Just last month, we acted for the initial purchasers on Adaro Energy’s offering of USD750 million, 4.25% guaranteed bonds due 2024, which was one of the highest-profile bond offerings out of Indonesia in recent years. On the corporate side, notwithstanding the challenges posed by the ongoing restructuring of a textile group and a reported potential default involving the bonds of a property developer, our prediction is that deal activity will increase following the appointment of President Jokowi’s new cabinet and the anticipated regulatory clarity that this may bring.
Vietnam: Growth in offshore bond issuance
The country has had a breakout year in terms of offshore bond issuances, which builds upon the wave of cross-border initial public offerings that A&O acted on in 2017 and 2018. This year, we have acted on the first-ever project bond out of Vietnam (the new bond and loan financing of the Mong Duong 2 project), which was the first time a combination of project bonds and traditional bank debt has been used to repackage an existing project financing in Vietnam. We also acted on the country’s first-ever MTN programme (VP Bank’s USD1bn EMTN). These and other transactions we are currently involved with are, we believe, representative of broader macroeconomic and regulatory liberalisation trends that we expect to continue across offering types, in particular by companies in the property, renewables and FIG sectors. In our view, Vietnam has the potential to follow the likes of Indonesia in terms of its potential for growth in offshore bond issuance. Vietnam’s growth trajectory will require massive infusions of foreign capital in the years to come. Following the implementation of a new regulatory posture for offshore bond financings (Decree 163, in January 2019) Vietnam’s central bank (SBV) has started to allow and encourage companies from certain sectors to raise debt financing overseas.
Thailand: Thai-Baht-denominated bonds and domestically syndicated issues set to continue
In Thailand, we are seeing a continued trend where companies with offshore bonds seek to capitalise on the rules imposed by Royal Decree on Tax Reduction (No. 586) B.E. 2558 (2015) to achieve lower tax gross-ups on coupon payments by establishing qualified treasury centres and conducting liability management exercises for their outstanding bonds. In October, we represented the dealer managers and coordination agents on the most successful transaction of this type to date. The deal related to PTT’s repurchases and the like-kind issues of 82.1% of its outstanding USD350m senior notes due 2035 and 57.9% of its outstanding USD600m senior notes due 2042.
We also acted on Bank of Ayudhya’s USD-denominated Women Entrepreneurs Bond, which was the first private-sector “gender” bond issuance in APAC and the first social bond issuance in Asian emerging markets in compliance with ICMA’s Social Bond Principles and ASEAN’s Social Bond Standards. Elsewhere in the market, we continue to see THB-denominated and domestically syndicated issues by companies outside Thailand – something we anticipate to continue through 2020 and beyond.
India: Pipeline for new issues remains robust
India remains a core focus for A&O’s DCM teams and 2019 has seen a flurry of activity. Highlights of the past year include advising the State Bank of India on the update of its latest programme and the issue of floating rate notes under its prior programme, Muthoot Finance on the establishment of its debut GMTN and first drawdown of USD450m 6.125% senior secured notes due 2022 thereunder, and the joint lead managers on HPCL-Mittal Energy’s offering of USD300m 5.45% senior notes due 2026. Going into 2020, we are confident that the pipeline for new issues remains robust and we will also continue our focus on restructurings and liability management exercises for issues in the non-banking financial company (NBFC) and renewables sectors where opportunities continue to arise.
Elsewhere in ASEAN and South Asia
Our longstanding representation of the Government of Sri Lanka continued in 2019, acting for the sovereign on three standalone bond offerings and for SriLankan Airlines on its debut offering of bonds due 2024 guaranteed by the sovereign. In the Philippines, we advised the sovereign on its SEC-registered offering of EUR750m 0.875% notes due 2027. In Singapore, we continued our regular representation of issuers and arrangers on standalone offerings and on established MTN programmes, with notable deals including SGD- and USD-denominated bond issues by ESR Cayman ahead of its HKSE IPO.
With the wealth of experience and expertise of our teams, we are well positioned to advise on a variety of debt, equity-linked and equity offerings as well as complex liability management exercises. The transactions mentioned above are examples of matters where we have played the role of lead counsel to either the issuer or the managers. On these and on many other transactions, we benefit from our outstanding local practices in the region and from a dedicated corporate trust and agency team and a specialised SGX listing agent team that are integral to our full-service offering.
We hope and expect to see more exciting transactions coming out of the ASEAN and South Asia markets in the year ahead.