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panellists Kim Jin-Kyung

executive director & CFO, The Export-Import Bank of Korea (Kexim)

Angus Salim Amran

vice-president/ head, treasury and capital markets, Cagamas

Scenaider Siahaan
deputy director of debt strategy Republic of Indonesia

Roberto B Tan
national treasurer, Republic of the Philippines

moderator Madhur Mehta

managing director, debt capital markets, Standard Chartered Bank

corner label
main title
secondary title
intro The fourth Asian Bond Market Summit panel discussion on issuers
viewpoint looked at how issuers tackled the difficult fund raising
environment back in late 2008/early2009, and what have they come
out learning from their experiences.

2009 was like a rollercoaster ride for Asian borrowers. Although the credit crisis did not affect
the region as bad as the rest of the world, issuers here faced some difficult times <->
especially early in the year <-> as they struggled to raise funds when liquidity had completely
disappeared in the wake of the collapse of Lehman Brothers. And just as the challenging times
had come without a warning, the recovery in the second half was so sudden and unexpected
that it caught many by surprise.

Kim Jin-Kyung, executive director & CFO, The Export-Import Bank of Korea (Kexim), recalls
that right after the collapse of Lehman Brothers in September 2008, the Korean export credit
agency <-> one of the most prolific issuers in Asia <-> could do nothing for weeks but wait for
the market to open. “At the end of last quarter of 2008,” he admits, “I could not think of
anything because there was no market at all. Actually there was nothing I could do.” In the
end, the agency was forced to use the country’s foreign exchange reserves to channel the
funds to country’s financial system, “otherwise the whole economy would have collapsed.”

Liquidity was so scarce that banks were advising issuers to take the money wherever they
could find it. Even the most high-profile issuers who would normally price the tightest possible
deals did not mind paying up, not knowing when they would be able to raise the money again
in the future. “Even with a triple A rating like ourselves, we understood the fact that we
actually had to pay up at that time,” says Angus Salim Amran, vice-president and head of
treasury and capital markets at Cagamas, Malaysia’s national mortgage corporation.

Although in hindsight, the early transactions like the Republic of the Philippines (ROP) US$1.5
billion 8.375% 10 year notes priced on January 7 2009, can look rich now, issuers point out
that back then it was a different situation for them. “There were heightened uncertainties as
nobody knew what direction the market would take during the rest of the year, says Roberto
Tan, national treasurer of the Republic of the Philippines. “The most important thing for us was
to get the funding and given the reasonableness of the price at that time, we seized the
opportunity.”

<h3>The crisis showed the readiness of Asian issuers </h3>

While Asian issuers struggled with tight credit markets conditions, the crisis showed too their
strength and their readiness for a time like this. The very fact that borrowers were able to tap
the market not long after the Lehman’s fallout showed the preparedness of the issuers, as well
as the improved conditions of their domestic financial systems.

The painful experience of the 1997/1998 financial crisis which forced some regional
governments to be more pro-active in developing their credit markets helped the regional
issuers to weather the storm better this time around, says Angus. “The 1997/1998 crisis was,
in fact, a godsend because it allowed us to put in place policies which helped us weather the
storm of 2007-2008,” he says. The Malaysian government, Bank Negara Malaysia and the
Securities Commission, he adds, have been particularly pro-active in ensuring that
implemented policies kept liquidity flowing in the financial system during the financial crisis.

Scenaider Siahaan, deputy director of debt strategy for the Republic of Indonesia (ROI), says
the fund raising difficulties that Indonesia faced in the aftermath of the Lehman collapse were
enormous, considering that both domestic and international markets had shut down
completely, forcing the sovereign issuer to cancel its planned <i>sukuk</i> issuance. To
make things worse, the government of Indonesia had decided to add more financing in order
to fund its financial stimulus package in addition to their original budget, which made the fund
raising even more urgent for ROI.
“It was a scary time for our office, but this was not the first time we had faced this kind of
conditions,” he recalls. He believes the most important thing was to continue to engage
investors and communicate to them Indonesia’s funding requirements and the conditions of
the Indonesian economy. “Investors had some doubts, especially about the Indonesian
economy. So we set up discussion sessions with them to explain to them that the Indonesian
economy was well diversified and was in a better shape to face the economic collapse in the
West. The process went on until the opportunity arrived to launch our <i>sukuk</i> issuance
in February 2009.”

The crisis has in fact prompted issuers to be more mindful of the need to meet investors and
address any concerns they may have during the crisis. As the credit market deteriorated and
risk aversion among investors shot up, it became important for issuers in the region to dispel
any doubts and concerns that investors had about their credit situations to calm down the
market.

Kim recalls that early in 2009, “unfounded bad rumours” about the Korean economy were
going around in the international financial markets to a degree that the Koreans urgently
needed to clear those rumours. “Somebody in Korea had to come to calm down the situation
by doing a successful issue, and we were called in to do the first issue by the government. I
thought this was going to be a painful issue. But when we went into the market, we saw
tremendous demand for our bonds. The pricing was so attractive that investors came in with
large orders. We did our job and then many issuers followed us.”

<h3> The key lesson: diversifying the investors base </h3>

More than anything else, issuers during this crisis have been forced to look for ways to
diversify their funding sources. As liquidity dried up in the G3 markets, many issuers looked
into their own domestic markets or other local currency markets to raise funds. This has
encouraged regulators in the region to speed up the development of their domestic credit
markets.

“We are certain that we cannot rely on only the global market,” says Siahaan. “That’s why we
have been prioritizing the development of our domestic market. In tandem with the central
bank, we have initiated the expanded use of government securities for monetary operations. I
would like our central bank to one day stop issuing its own securities and replace it with the
government securities,” he adds. Indonesia, Siahaan says, is developing its domestic market
too by diversifying its product offering to include retail domestic rupiah bonds or retail
<i>sukuk</i>. “We perceived that the global market is a complement to our financing needs.
One day, we dream that all of our financing needs will be met from domestic market.”
In addition, issuers like Kexim have been tapping other local currency markets in order to
diversify their investors base. Kexim, which has been at the forefront of tapping local currency
markets, not just in Asia but in Latin America as well, has in total raised funds in 11 different
currencies. Entering a new market for the first time involves taking a slew of risks and can
initially be expensive, says Kim of Kexim. “We are willing to take that risk because this is going
to be a good opportunity for us not merely to raise funds but also to broaden our investors
base for our conventional G3 currency issues,” he adds. “The difficulties we faced in the initial
stage by developing those markets were that they were relatively expensive and the risks
were high, but we were committed to taking those risks.”

On the other hand, issuers like Cagamas which have been traditionally more active in
domestic markets is looking at an overseas investors base. “Domestic investors are still
important to us, considering that they have always been our key investor base, but we are
looking at expanding into the overseas market because we understand the need to export our
product, the need to widen our investors base. That comes at a cost: we have to be able to
offer investors a product in which they want to invest. From that stand-point, we have looked
at promoting the <i>sukuk</i> structure in foreign markets,” he says.

<h3> Still preparing for the worse </h3>

Markets are in much better position today than a year ago and issuers are feeling much
relieved. For many participants though, the crisis is not over yet, and this explains why issuers
are mindful of being prepared for either another major step-back or some little hiccups. “We
still need to be prepared for the worse,” says Kim. So we will carry enough funds to be
prepared.”
Tan agrees. “The recovery has not really taken firm footing. This is a warning for us to continue
our readiness and preparedness for any eventuality that might happen,” he says. “So the best
advice I could offer is to continue the engagement with investors, provide them with
information on the development of your credit and be transparent about what you intend to do
and about your borrowing programme.”