Latin Finance - March/April 2012 - 23

asia buyside

majority of buyers, as the deal was largely executed during Asian hours, but US and European investors participated as well. “For Asian investors, this is already an important market,” says Bouazza. “For Europeans and US accounts it is still an educational process.” Like European investors who are trying to diversify their portfolios beyond familiar local names, Asian accounts are also looking to branch out into credits outside of their own region. América Móvil can provide such investors with exposure to all of LatAm, explains García Moreno. While the Dim Sum investor base is arguably more diversified than the retail-dominated perp market, it is still comparatively small. The growing Dim Sum bond market could easily accommodate more LatAm borrowers, though followers of América Móvil’s recent foray into the renminbidenominated instruments could take some time in getting there. “There will be tremendous room for Brazilian companies to come and raise capital,” says George Ding, CEO of Hua An Fund Management in Hong Kong. He notes that the market is expected to be at the center of the Chinese government’s five-year drive to internationalize the yuan, and more LatAm issuers could come to this market in 2012 if they so chose, he adds. Local bank deposits of some 630 billion yuan ($99 billion) with very low interest rates means that investors will likely be willing to buy higher-yielding LatAm bonds denominated in a currency that looks set to appreciate going forward. “There is room for more foreign issuers,” says João Paulo Loyola, who works in Bradesco’s fixed-income sales in Hong Kong. “There is an amount outstanding of 150 billion yuan in bonds, so the potential demand is four times.”

only then perhaps to Latin American issuers. Though there is interest in diversifying, lack of research capability often means an inability to look past a few sovereigns and perhaps quasi-sovereign names like Pemex and Petrobras. LatAm entities issuing bonds directly in the Hong Kong market and cross-listing equity there – as Brazil’s Vale did in late 2010 – are a good start.

“We want to establish a more regular presence in this market, with funding that can be used to cover our inputs of Chinese goods,” says América Móvil CFO Carlos García Moreno
“It has to be a cascading process, starting with the high-quality names and going down to more exotic names,” says Ding. There are not many long-dated Dim Sum bonds at present, though Ding says there may be some institutional investors in search of longer-term bonds. Large global houses have a good understanding of EM, but for China-based managers there is more of a learning curve. “As you get more comfortable with your home market, you look elsewhere to add return,” says Jiang You Heng, head of investment strategy at China’s Guotai Junan International. Though LatAm is still somewhat unfamiliar, Jiang recommends more Dim Sum issuance, as there is certainly money waiting to be put to work in that market. For Asian investors eyeing possible LatAm investments, political stability remains a concern, as is the region’s history of debt restructurings. “Those of us who have been around these markets a long time are skeptical,

Still a Foreign Concept

For now, however, the Dim Sum market remains the domain of high-grade issuers only, limiting access to a broader swathe of LatAm credits. One hurdle is Asian investors’ lack of familiarity with LatAm credits. Buyers in Asia look first to China and other Asian emerging markets, then to the US, and

because we’re not sure this time is going to be different,” Jiang says. “Politics is harder for those of us who don’t sit there to figure it out.” Ju Sung Cheol, a fixed-income portfolio manager at Daewoo Securities in Hong Kong, which has about $1 billion under management in EM debt, echoes such sentiments. “The problem is we have limited knowledge and access,” he says. Cheol’s shop takes a top-down approach to LatAm, picking countries and then sectors and focusing on high-grade credits. However, it has no high-yield credit analysts, making the process of buying lower grade credits difficult and often making Daewoo pass on such deals even when they want to put them in their portfolio. With the Dim Sum bond market, liquidity is also a concern, Cheol says, as evidenced by the small size of América Móvil’s issuance. This is less of an issue in the Japanese Samurai market, which is more buy-and-hold. With the more liquid dollardenominated bond sales, Cheol says lead managers don’t need to spend much time marketing to Asians, and geography means participation comes through overnight greenshoes for large sales. However, Asian investors are becoming less of an afterthought as leads take more time to sell dollar deals in the region. This happened with Petrobras’s $7 billion four-part bond sale in January, which was kept open overnight after launch to have a window that accommodated Asian, European and US buyers. Meanwhile, sovereigns continue to look to Asia as an alternative funding pool, mostly in Japan’s Samurai market. Juan Pablo Newman, the director of debt issuance at Mexico’s finance ministry, has reiterated his government’s wish to issue a non-guaranteed Samurai this year. With yields remaining low in Japan, LatAm issuers are poised to keep taking advantage of the Japanese market. This, too, has been a process of gaining familiarity. “Investors know Mexico now, and can do the more specific analysis required of non-guaranteed issues,” Newman says. Mexico met investors late last year with Nomura, Mitsubishi UFJ and Mizuho, but decided against issuing. LF

March/April 2012

LatinFinance 23

Latin Finance - March/April 2012

Table of Contents for the Digital Edition of Latin Finance - March/April 2012