ELECTION DATE QUESTION MARK There has been speculation for months that there could be a delay to elections as the establishment grapples to stabilise the country, which is facing overlapping security, economic and political crises. Data from the latest census carried out in May was finally published at the weekendContinue Reading
All major exporting nations showed steep year-on-year declines in shipments during June and July led by South Korea and India, which both fell by 16% during July and June, respectively. China and Taiwan registered year-on-year declines of 9.2% and 10.4% in July. Singapore’s July exports, moreover, fell 19.3% year over year, while Vietnam’s fell by 15%.
China’s July pullback drew attention from major media because of the tense political atmosphere surrounding its trade, but the Chinese data are unremarkable. As the above chart shows, China’s export performance was in line with the rest of East Asia and South Asia. The most prominent “re-shoring” venues – countries that supposedly offer an alternative to China’s enormous export machines fell even farther than China itself.
The shrinkage in exports occurred across all major markets. China publishes detailed export data earlier than most countries, and these show a downturn in all major destinations.
According to US data for June, the latest month available, total American imports fell by 9.9% year over year. The fall in China’s exports to the US is exactly in line with the overall shrinkage of US exports.
Part of the world export slump is due to lower prices. After the 2021-2022 burst of inflation, which peaked at a 19% year-on-year rise in export prices in May 2021, world export prices fell into deflation during the past three months. Overall, export prices showed a 5% decline as of May, according to the Netherlands Central Planning Bureau.
Consumer electronics, which boomed during the COVID lockdowns, were one of the most affected sectors. The semiconductor shortage of 2021-2022 has turned into a global glut, with substantial price discounting for computer chips.
CRITIC OF WASHINGTON Khan has been a critic of US foreign policy almost throughout his political life. During his years as a rising politician, the former cricket star was among the fiercest critics of US drone attacks targeting militants along the country’s Afghan border, which he termed extra-judicial killings andContinue Reading
ReutersImran Khan has been arrested for the second time in a matter of months, but this time the reaction looks very different. What could happen next?
There could not have been a starker contrast between 9 May and 5 August this year.
While Imran Khan’s first arrest led to protests in the streets from Peshawar to Karachi, with buildings burning and the army on the streets, Saturday night was no different from any other normal night in Pakistan.
Mr Khan is currently in prison, sentenced to three years for not declaring money gained by selling state gifts.
The sentence will lead to his disqualification before the upcoming elections.
His call for peaceful protests, urging people not to sit quietly in their homes, has – for now – has not worked. Why?
Ask government ministers and they will say that it is because people do not want to follow Imran Khan or his party, the PTI – unwilling to be associated with a group responsible for previous violence. That is not the message from Mr Khan’s supporters.
Imran Khan’s relationship with the establishment – shorthand in Pakistan for the politically-powerful military and intelligence agencies – soured more than a year ago.
Mr Khan was widely seen by analysts as having come to power with the help of the establishment and to have subsequently lost it when that relationship deteriorated.
Since then, instead of waiting quietly until the next election, he has continued to criticise the army’s leadership. When army buildings were attacked following Mr Khan’s arrest in May, the military let it be known that they had a zero-tolerance approach to those they saw as responsible.
The subsequent crackdown has left Imran Khan’s party decimated.
His supporters were arrested in their thousands, and some will be tried in military courts, despite the outcry from human rights groups that the system should not be used for civilians.
Some in Pakistan’s media have told us that from late May – after TV station owners met the military – journalists were no longer allowed to say Mr Khan’s name, show his picture or even write his name on the tickertape.
Anecdotally, many previously vocal supporters told us that they had stopped posting about the PTI or its leader on social media, deleting their posts and no longer watching his public broadcasts, afraid of who might be watching them watching him.
The government has told the BBC that it does not arrest peaceful protesters. However, BBC Urdu journalists saw PTI supporters gathering outside Mr Khan’s house in Lahore on Saturday afternoon taken away by police. It is not clear if they were formally arrested.
Speaking on condition of anonymity, a contact in the police told the BBC that they had arrested about 100 PTI supporters. He said that the force had been told to stay vigilant and ensure no Imran Khan supporters began gathering.
“I think the response from the draconian crackdown has scared Khan supporters into submission,” says Michael Kugelman, director of the South Asia Institute at the Wilson Center think tank in Washington.
“I really think that the support base was unwilling to put itself at risk in the way we saw on 9 May.
“From one sense, the military has played this just right. They used these brutal tactics that really pre-empted a larger and more robust reaction from Khan’s support base.”
Imran Khan’s legal team have made it clear that they intend to appeal against the decision to jail him.
In the course of the last few months, his lawyers have been able to repeatedly gain some temporary relief from different courts – delaying rather than stopping some of the more serious court cases.
It’s unclear if this will continue. Mr Khan saw his arrest dramatically overturned back in May, but in a very different political environment.
Imran Khan is one of several former Pakistani leaders who have ended up in the courts – Nawaz Sharif, Benazir Bhutto and the military dictator Pervez Musharraf, to name just a few in recent decades.
Mr Khan imprisoned several of his own political rivals while serving as prime minister.
Pakistan’s politicians will often say that the justice system is politically motivated against them, while justified against their opposition.
If Imran Khan remains disqualified from holding public office, there are big questions about what will happen to his party.
Mr Khan has told us previously that the PTI will live on and thrive, whether he is able to be elected or not. That is far from a certainty.
“The next big question, given the election, is how will the remaining leadership of the PTI try to mobilise?” says Mr Kugelman.
“Will they try to get their supporters out on the streets, will that be successful? It will be a good test.”
The PTI is a party created by and centred on Mr Khan. Even its logo printed on voting forms is the symbol of a cricket bat, a nod to Mr Khan’s previous career as an international cricketer.
Many of the senior political figures that surrounded Mr Khan earlier this year have since left his party. Others involved in his party are in hiding, evading arrest.
None of these suggests it would be easy for the party to run an effective political campaign.
There is no vaccine or drug that specifically treats dengue, which is common in South Asia during the June-to-September monsoon season when the Aedes aegypti mosquito that spreads the deadly virus thrives in stagnant water. Experts said they expect to get more cases through August and September. This year’s deathsContinue Reading
Ranil Wickremesinghe, the president of Sri Lanka, recently traveled to India and left with an ambitious plan for diplomatic communication. The visit was another stage in India’s new collaboration with Sri Lanka, which it started in 2022. However, in order to forge stronger economic ties, supply stores, a comprehensive free trade agreement, and increased central banks assistance are all necessary.
The joint statement & nbsp released following the meeting on July 21 made it clear that the economic aspect of the bilateral relationship was highlighted. In the past, & nbsp, disputes over fisheries, India’s security concerns over China’S role in Sri Lanka, and the unresolved issue of ethnic reconciliation have prevented bilateral economic cooperation. However, after Sri Lanka’s economy defaulted on its foreign debt in April 2022 and descended into an economic crisis, India played a crucial” neighborhood first” role with US$ 4 billion andnbsp.
This moment, it’s not just a government-to-government scheme. The agreement promotes joint ventures with Sri Lankan businesses as well as private sector investment from India. The three areas that are the focus of this association are logistics, power, and tourism. Improved local logistics, the construction of slots in Colombo, Trincomalee, and Kankesanthurai, ferry services between American and Sri Lankan ports, as well as improved air connection between the two nations are all examples of this. These are firm opportunities that support the movement of persons to persons.
Bilateral power commitment and nbsp are important. The most significant initiatives include plans to join the electricity grids of India and Sri Lanka with an oil pipeline. India now has energy and oil pipeline connections with Bangladesh and Nepal, giving Sri Lanka a model to follow. India is an importer of power, but it also has a world-class and enormous oil refining and control market.
Due to India’s economies of scale, Sri Lanka does receive cheaper fuel if it is connected to the American oil grid. Gas shortages in Sri Lanka, as seen in 2022 andnbsp, may be lessened as a result of reduced foreign exchange reserves. If American oil can be purchased in Indian rupees, trade credits may be made easier and exchange costs may decrease.
It’s possible that connecting the energy systems will change everything. Due to its reliance on locally produced fuel and native expertise, India’s power is among the most affordable in the world. Sri Lanka can create its own wind energy trade potential and overcome electricity shortages with the help of dependable and economical American power. The American power grid can therefore receive this clear but continuous electricity.
Sri Lanka is also looking to take advantage of India’s renowned, open-source online public infrastructure, which enables the delivery of crucial government services online. Electronic payment in pounds can be used for small businesses and foreign visitors in Sri Lanka by using the Indian Rupee to negotiate diplomatic trade and operationalize India’s Unified Payment Interface.
The take-off has started, but three additional business-oriented alignments must now be pursued in order to fully integrate diplomatic deal.
Integrating Sri Lanka into India’s developing supply chain and nbsp model comes first. China pays higher hourly pay than South Asian nations. Southern Asian companies, like China, are adaptable and eager to work with smaller orders. South Asia today needs to reduce the high trade costs that are already impeding business growth by pursuing greater trade openness, enhanced regional trade and transportation infrastructure, and streamlining behind-the-border regulations. South Asia may create local commercial clusters and trade processing zones along a well-oiled supply chain once reforms are put into place.
Sri Lankan businesses looking to expand should invest in North American states. Companies like Brandix, Dilmah, and John Keels Holdings should invest in the textile industry, drink and commerce, respectively. By enhancing investor marketing, liberalizing FDI entry regulations, and removing dark tape through digitization, India and Sri Lanka may actively market diplomatic foreign direct investment flows.
It would be crucial to start early negotiations on the Economic and Technology Co-operation Agreement to encourage local rules-based commerce and FDI. By implementing so-called 21st century industry rules, the goal should be to promote deeper integration through supply stores and trade in services.
Both nations then realize they stand to gain more from trade facilitation measures and nbsp. Investments in infrastructure and transport, a proposed property bridge, logistics, and governmental harmonization are among them. To stop backlash from losing industries and small businesses in Sri Lanka, negotiations must take into account the imbalance between the financial strengths and nbsp of the two countries.
It’s also essential to strengthen core bank assistance. It is necessary to hold regular meetings between Sri Lankan and Indian central bank officials as well as implement an earlier economic crisis reminder technique. Following the Asian Financial Crisis of 1997, ASEAN adopted the a & nbsp, or mutual monitoring mechanism, to identify early warning signs, warn others of impending crises, and support one another among its members. A bilateral agreement between India and Sri Lanka has the potential to become regionalized throughout the rest of South Asia.
An enhanced International Monetary Fund ( IMF ) Capacity Building program is another area. Delhi is home to the South Asian IMF Training and Technical Assistance Center for Economic Capacity Building. It can be expanded to offer more instruction in economic stability and economic control with Indian assistance. Local stability depends on such institutional mechanisms.
The Modi-Wickremesinghe negotiations laid the groundwork for a new way in Sri Lanka and India based on stronger business-to-business relations promoted by both governments. The & nbsp, with experience in East Asia, demonstrates that market-led regionalism and the nrbp is the practical course of action to achieve prosperity and growth.
Manjeet Kripalani serves as Gateway House’s executive director, and Ganeshan Wignaraja is a faculty brother in finance and trade there. East Asia Forum previously published this piece, which has been republished with Creative Commons permission.
The repercussions of recent black swan events are contributing to a new dealmaking landscape – one that continues to ebb and flow as geopolitical tensions rise and governments work to ensure that regional emissions fall.
As regulators respond to global inflation with interest rate hikes, market participants are adapting to the post-pandemic outlook, where the structural integrity of systemic lenders has been called into question; bank runs have been navigated; and a debt ceiling default, narrowly avoided.
“Volatility is the only constant,” Elaine He, head of Debt Capital Markets (DCM) Syndicate for Asia Pacific at Morgan Stanley, told FinanceAsia.
“Bond issuance has been slow as issuers wait on the sidelines because of uncertainty and the increasing rates environment,” Barclays’ head of Debt Origination, Avinash Thakur, motioned. “The biggest factor impacting dealmaking continues to be the US Federal Reserve’s tightening bias.”
“Even if there is a lot of liquidity in the market, the cost of borrowing is too high,” Singapore-based corporate practice partner at DLA Piper, Philip Lee, told FA.
“Most CFOs, CEOs or other corporate decision makers who are in their late 30s or early 40s, would not have even started their careers when interest rates were this high – in the late 1990s, or early 2000s. I suspect it will take some time for companies to adjust to this higher interest rate environment.”
But Sarah Ng, director for DCM at ANZ, holds some positivity amid current market uncertainty. She noted how recent headline events are influencing short-term market sentiment and shaping deal-focussed behaviour, for the better.
“We are seeing narrower open market windows. This has meant that issuers have had to adopt an opportunistic and nimble approach when accessing primary markets,” she offered.
“We did see a degree of caution and a flight to quality, especially post-Silicon Valley Bank (SVB) and Credit Suisse, but the sell-off was largely contained to specific bank capital products. What has been surprising, has been the speed of bounce-back in both primary and secondary market activities, with a robust pipeline of issuers and receptive investor base back in play,” she explained.
FA editorial board member and head of DCM for Asia Pacific at BNP Paribas, Manoj Agarwal, agreed that unexpected developments have made market activity very much “window-driven”.
“From an issuer perspective, being prepared and able to access markets at short notice, as and when market windows are optimal, has become important,” he said.
Furthermore, he noted that market recovery has been much faster this year, compared to the protracted period of indecision brought about by the Covid-19 pandemic.
“Although the year has been peppered with volatility and disruption, market efficiency is also improving, helping to reduce the impact these events have on dealmaking,” he emphasised.
Going local
George Thimont, head of ESG Syndicate for Asia Pacific and leader of the regional syndicate (ex-Japan) at Crédit Agricole, observes three notable trends emerging amid the current, Asia-based dealmaking environment.
“Issuance is broadly down across the board – in spite of good demand from the investor community. From a sectoral perspective, the notable absentees are the corporates, and local market conditions in certain jurisdictions, such as South Korea, have offered good depth and pricing versus G3 currencies.”
Citing Bloomberg data, Agarwal noted that for Asia ex-Japan, 2023 year-to-date (YTD) G3 DCM volume as of mid-June was down by 35.4% year-on-year (YoY), with 2022 already down by 54% compared to the same period in 2021.
But he agreed that South Korea displays some optimism, given that its 2023 YTD deal volumes remain flat, compared to the same period in 2022.
In fact, some of the market’s larger institutions have been quite active overseas. In February, the Korea Development Bank (KDB) issued $2 billion in bonds via Singapore’s exchange (SGX) in what constituted one of the largest public market issuances by a Korean institution in recent years.
Debt from issuers such as sovereigns, supranationals and agencies (SSA) or state-owned enterprises (SOEs) has benefitted, managing director and head of Asia Pacific Debt Syndicate at Citi, Rishi Jalan, told FA.
“We expect corporate issuance in the US dollar bond market to be a bit more robust in the second half of the year,” he explained. In the meantime, Jalan said that some issuers are selectively tapping local currency markets where financing terms are lower, such as in India, China and parts of Southeast Asia.
However, not everyone feels that Asia’s regional markets can cater to the demands of the significant dry powder at play.
“Most liquidity in the local currency market comes from the banking system,” Saurabh Dinakar, head of Fixed Income Capital Markets and Equity Linked Solutions for Asia Pacific at Morgan Stanley, told FA.
He is sceptical of the current capacity for local markets to meet the requirements of internationally minded issuers. However, he noted as an exception the samurai market, which he said had proven vibrant for some corporates with Japan-based businesses or assets.
“Larger long-term funding requirements can only be satisfied through the main offshore currencies, such as dollar securities,” he explained.
Turning to the regional initiatives that have been set up to encourage participation in Asia’s domestic markets such as Hong Kong’s Connect schemes – the most recent of which, Swap Connect, launched in May – Dinakar shared, “What we need to see is broader stability.… These developments are great, but for investors to get involved in a meaningful way, general risk-off sentiment needs to reverse.”
“There was huge optimism around reopening, post Covid-19. This has since faded as corporate earnings have disappointed and there has been no meaningful stimulus. The markets want to see policy stimulus and, as a result, corporate health improving. Performance across credit and equities will then follow.”
Sustainable momentum
One area of Asian activity that stands strong in the global arena, is ESG-related issuance.
In March, the International Capital Market Association (ICMA) published the third edition of its report on Asia’s international bond markets. The research highlighted that, in 2022, green, social, sustainability and sustainability-linked (GSSS) bonds accounted for 23% of total issuance in Asia – higher than the global ratio of 12%.
“Demand is still more than supply, and investors tend to be more buy and hold, so we’ve seen that sustainable bond issuance has been more resilient than the market as a whole,” shared Mushtaq Kapasi, managing director and chief representative for ICMA in Asia.
“ESG has come to form an integral part of the dealmaking conversation in Asia. Over 30 new ESG funds have launched here in 2023; the number of ESG-dedicated funds is up 4% YoY; and Asia makes up 11% of the global ESG fund flow as of 1Q23 – up from 5% a year ago,” said Morgan Stanley’s He.
“The Hong Kong Special Administrative Region (HKSAR) government recently came to market as the largest green bond issuer in Asia so far this year,” she added.
Discussing the close-to-$6 billion green bond issuance, Rocky Tung, FA editorial board member, director and head of Policy Research at the Financial Services Development Council (FSDC), shared that the competitive pricing contained a variety of durations and currencies that “help construct a more effective yield curve that will set the benchmark for other issuances – public and private – to come.”
This, he explained, would not only be conducive to the development of green and sustainable finance in the region, but would specifically enrich Hong Kong’s debt capital market.
“ESG-related bonds can provide issuers with an additional selling point to attract investors,” Mark Chan, partner at Clifford Chance, told FA.
“They can demonstrate the issuer’s commitment to fighting climate change for example…. Issuers with a social agenda, such as the likes of the Hong Kong Mortgage Corporation (HKMC), can highlight their mission and objectives by issuing social bonds to enhance the investment story.”
In October last year, HKMC achieved a world first through its inaugural issuance of a dual-tranche social facility comprising Hong Kong dollar and offshore renminbi tranches, which totalled $1.44 billion.
“We are also seeing more bespoke ESG bonds such as blue and orange structures,” Chan added, referring to recent deals that the firm had advised on, including the Impact Investment Exchange’s (IIX) $50 million bond offering under its Women’s Livelihood Bond (WLB) Series; and issuance by China Merchants Bank’s London branch, of a $400 million facility – the first blue floating-rate public note to be marketed globally.
FA editorial board member and head of sustainability for HSBC’s commercial banking franchise in Asia, Sunil Veetil, noted that while Asian issuance fell in most segments, green sukuk and social bonds helped sustain momentum.
“For green debt, energy was the most financed project category in Malaysia, the Philippines, Thailand, and Vietnam, accounting for more than 50% of allocation,” he shared, citing a report by the Climate Bonds Initiative (CBI).
“In Singapore, which remains the undisputed leader of sustainable finance in Southeast Asia, around 70% of green debt went to buildings, mainly for the construction of green buildings, and to a lesser extent, for retrofits and to improve energy efficiency.”
“There continues to be regulatory support for ESG bonds, including grants provided by the Asia-based stock exchanges to list green bonds,” added Jini Lee, partner, co-division head for finance, funds and restructuring (FFR) and regional leader at Ashurst.
A boom for private credit
Crédit Agricole’s Thimont told FA that Asian credit has remained resilient through recent global risk events. Private markets and funds are emerging as alternative sources of capital for those corporates with weaker funding lines, DLA Piper’s Lee observed.
Indeed, the further retrenchment of banks from lending has provided an opportunity for private credit players to swoop in and fill an increasingly large void. Globally, the sector has grown to account for $1.4 trillion from $500 million in 2015 and Preqin estimates that it will reach $2.3 trillion by 2027.
Once a niche asset class, investors are drawn to private credit’s floating rate nature which moves with interest rates and offers portfolio diversification.
Andrew Tan, Asia Pacific CEO for US private credit player, Muzinich & Co, earlier told FA that private credit players aim for investment returns of around 6-8% above the benchmark rate in the current environment.
The firm’s sectoral peers, including KKR, have argued that institutional investors should consider allocating as much as 10% to private credit. Alongside Blackstone and Apollo, the US global investment firm has added to its Asian private credit capabilities in recent years, while new players, including Tokyo-headquartered Softbank, have recently entered the market. In May, media reported that the Japanese tech firm sought to launch a private credit fund targetting late-stage tech startups and low double-digit returns.
Elsewhere in Japan, Blackstone recently partnered with Daiwa Securities to launch a private credit fund in the retail space, targetting individual high net worth investors (HNWIs).
Unlike in the US, where non-bank lenders now outnumber traditional financiers, “Apac remains heavily banked, so we expect to see ample room for private debt to grow in the region,” Alex Vaulkhard, client portfolio manager within Barings’ Private Credit team told FA.
He sees particular opportunity to serve the private equity (PE) space. “Although PE activity has been a bit slower in 2023, we expect activity to return, which will increase lending opportunities for private debt.”
Asia accounts for roughly $90 billion or about 6.4% of the global private credit market, according to figures cited by the Monetary Authority of Singapore (MAS) that highlight the market’s growth potential.
The biggest vehicle in Asia to date is Hong Kong-headquartered PAG’s fourth pan-Asia fund which closed in December at $2.6 billion.
However, overcrowding in some markets – notably India, where investors have amassed since new insolvency and bankruptcy laws came into force from 2016 – has made lenders increasingly compete for deals and acquiesce to “covenant-lite” structures, where investor protection is reduced.
But Tan, who is currently fundraising for Muzinich’s debut Asia Pacific fund – a mid-market credit strategy with a $500 million target, believes this only to be a problem in more developed markets such as Australia and is unlikely to become an issue in the wider region.
“If anything, the trend is in the direction of more conservative structures with increased over-collateralisation and stricter covenant protection,” he told FA.
Fundamentally, seasoned private credit participants are aware of the importance of covenant protection, so their likelihood to compromise on this is low, he added.
With monetary policies tightening at one of the fastest rates in modern history and recession looming in several markets, a key challenge for private credit is borrowers’ ability to service their debts.
“There is no doubt that default rates will go up and I would be cautious of cashflow lends with little or no asset backing,” said Christian Brehm, CEO at Sydney-headquartered private debt manager, FC Capital, calling for adequate due diligence when evaluating opportunities in the current environment.
“We would not be surprised to see an increase in default rates, but these are more likely to occur in more cyclical industries or among borrowers who have taken on too much debt in recent years,” Vaulkhard opined.
The managers suggested a tougher fundraising environment ahead, as the performance of fixed income instruments improves to offer limited partners (LPs) attractive returns.
What’s next?
The banking sector’s evolving regulatory landscape is also contributing to Asia’s changing DCM outlook.
Initially proposed as consequence of the 2008 global financial crisis (GFC) and with renewed rigour on the back of recent adversity across the banking sector, new capital requirements are set to be rolled out in the US and Europe as a final phase of Basel III. Often dubbed “Basel IV” for their magnitude, market implementation was originally scheduled for January 2023, before being delayed by a year to support the operational capacity of banks and market supervisors in response to the Covid-19 pandemic.
Experts caution that while more stringent banking regulation will challenge Asia’s traditional lending mix, it will also offer opportunity.
“There is a big amount of regulatory capital to be rolled out following the new Basel III rules, which will impact the type of debt to be issued,” said Ashurst’s Lee.
“We have been speaking to issuers who have been anticipating this uptrend as well in the coming years and are building in this scenario in their mid- to long-term treasury planning,” she added.
“Although the implementation of the Basel III final reform package was postponed in jurisdictions such as Hong Kong, those subject to it will no doubt be grappling with the new capital requirements already,” said Clifford Chance’s Chan, noting how its introduction will likely impact banks’ risk-weighted asset (RWA) portfolios.
“Aspects such as the raising of the output floor could potentially see some banks try to charge more for their lending,” he said.
Hironobu Nakamura, FA editorial board member and chief investment officer at Mizuho and Dai-Ichi Life tie-up, Asset Management One Alternative Investments (AMOAI), agreed that the new Basel reforms will lead to more scrupulous risk assessment by lenders, but how this will affect banks’ portfolio construction more concretely, remains uncertain.
“A heavy return on risk asset (Rora) requirements will likely impact banks’ risk asset allocations, region to region. [But] it is quite early to determine whether Asia is risk-off or -on at this stage, from a bank portfolio perspective.”
FA editorial board member and AMTD Group chair, Calvin Choi, proposed that if lending were to become more expensive for global players, there could be upside for regional banks.
“Updated Basel rules will impact global banks operating onshore, adding costs and making them less able to use their balance sheets. Local banks won’t have this constraint, so they will win market share,” he shared.
However, he noted that for those Asian banks that want to participate in overseas markets, business will become more costly and compliance-heavy. “It will keep more local banks local.”
“All of this will mean a higher cost of borrowing and less capital available to banks…. It will create opportunities for non-bank lenders such as non-banking financial institutions (NBFI), family offices and private funds to fill the gap,” said DLA Piper’s Lee.
“With stricter capital requirements under ‘Basel IV’, we anticipate that bank loan funding will become more expensive for issuers. As such, we could see a return to capital market funding from issuers who have hitherto heavily relied on loan markets this year,” said ANZ’s Ng.
Choi added that this may even lead to Asia’s bond markets being viewed as more competitive than their global counterparts.
“Overall, the DCM market has become slow and stagnated,” Nakamura observed. “However, there are areas where funding is continually needed,” he said, pointing to the energy transition space as well as digital transformation.
What exactly the new regulatory environment will mean for Asia’s market participants amid macro volatility, rising interest rates and escalating geopolitical tensions, remains unclear. But the developing outlook could offer those able to structure more creative facilities, more business; drive the advancement of Asia’s local capital markets; and support the region’s wider efforts to transition to net zero.
Proponents of private credit remain optimistic.
“Capital raising might cool down in the short-term, but the true private debt lending market is about to kick off,” said Brehm.
“We believe that there is a lot of growth ahead,” Barings’ Vaulkhard stated, sharing that conditions are likely to improve for lenders this year, with spreads widening, leverage falling, and overall credit quality enhancing.
“We are only at the start of a multi-year growth journey,” Tan concluded.
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Rescue 1122 BajaurAt least 35 people have been killed in an explosion in Pakistan during a rally organised by an Islamist party.
Dozens of people were also injured in the explosion in north-west Bajaur district, where Jamiat Ulema-e-Islam-Fazl (JUI) was holding a meeting.
Authorities have cordoned off the area and have warned the death toll is likely to rise further.
A rescue operation to assist the injured is ongoing and police have not yet confirmed the cause of the blast.
Images being broadcast on local TV show ambulances ferrying injured people to hospitals in the Pakistani tribal district of Bajaur, in Khyber Pakhtunkhwa province near the border with Afghanistan.
Some badly injured people have been waiting in the hallways of health clinics struggling to cope with the high number of casualties.
The authorities have declared a health emergency at the district hospital.
A regional leader of the JUI, Maulana Ziaullah, was killed in the blast, local officials have said.
With several ESG-backed initiatives in recent years, the Philippines-based conglomerate Ayala has solidified its commitment to sustainability. Operating across verticals including energy, finance, infrastructure, and real estate, Ayala has committed to net zero greenhouse emissions by 2050. The conglomerate’s energy wing ACEN recently created the world’s first energy transition mechanism (ETM) in November 2022, backed by BPI and RCBC.
On the social front, Ayala’s GCash app and BPI’s BanKo have played pivotal roles in financial inclusion for unbanked Filipinos and small to medium size enterprises. BPI and Globe are currently reviewing their framework to consciously focus on these areas.
When it comes to governance, Ayala’s boards are working towards an appropriate level of diversity and independence. This involves maintaining high standards when it comes to transparency and disclosure.
The 190-year-old company’s social and sustainability initiatives have a long history. Albert de Larrazabal, CFO at Ayala Corporation said, “We have always aligned ourselves to national interest and had very high standards of governance and stewardship. As we must be mindful of the ecosystems we operate under, ESG in various forms has always been part of our value proposition.”
Ayala’s approach to ESG
Today, ESG-based financing is a priority for Ayala. Apart from ACEN’s implementation of the world’s first ETM, Ayala has issued a social bond with the IFC in support of its cancer hospital. Larrazabal said, “We are looking to do KPI-linked social and ESG financing, which incorporates targets into the commercial terms and conditions of the loan.”
Even during the M&A process, the conglomerate is mindful of integrating new acquisitions into its ESG framework. Ayala has also taken steps to ensure that ESG is a priority that is ingrained at the highest levels of the organisation, leveraging its membership with the World Business Council for Sustainable Development (WBCSD). The conglomerate’s board has received training which ensures they can play an active role in tracking and monitoring developments in the ESG space.
Corporates making public commitments to sustainability draw a lot of attention, not all of it positive. Asked how Ayala approaches concerns about greenwashing, Larrazabal said, “Sometimes it happens inadvertently because of incorrect measurements. That’s why we brought in South Pole. We have taken steps to ensure we are on the right track by committing to independent verification, to give people a degree of reassurance.”
Building a model for the APAC region
While the need for sustainable leaders is strongly felt across APAC, many countries in the region have a minimal contribution to emissions — the Philippines emits half the global average on a per capita basis. Larrazabal said, “Between 80% to 88% of our emissions — depending on individual businesses — are scope 3.” These emissions are defined as the result of activities from assets not owned or controlled by a reporting organisation, but which are a part of its value chain. Larrazabal said, “Our scope 3 is somebody else’s scope 1 and scope 2. We need an environment that enables, incentivises, and if that fails, penalises those who disregard scope 1 and 2.”
Many emerging markets grapple with issues similar to those facing the Philippines — adopting renewable energy, while meeting the demands of a growing population and economy. As a result, ETM-like arrangements may be embraced to a greater extent. Asked for his advice on managing such a transaction, Eric Francia, president and CEO at ACEN said, “It is important for investors to reconsider their position on coal, so long as the principles are well understood. One may be investing in a coal plant, but for a good purpose, which is enabling its early retirement.”
Offering a financial perspective on the ETM, TG Limcaoco, president and CEO Bank of Philippine Islands added, “We provided lending and brought in other institutions. We took reduced rates of returns for equity and debt exposure, which allowed us to shorten the life of the plant by 10 to 15 years. It is a big win for everyone involved.”
For more on Ayala’s adoption of ESG and a deeper insight into the world’s first ever ETM, please watch the accompanying video.
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What do the Olympic Games have in common with a US-China trade war now at a stage where Washington is moving to boost chips ties with Taiwan even as it introduces new sanctions targeting China?
According to Xie Feng, China’s ambassador to the US, there is a comparison to be made. What the Americans are doing with the tech curbs, he explains, is “like someone wearing a ‘shark’s skin’ swimsuit but forcing others to wear outdated ones.” The reference is to a NASA-designed high-tech swimsuit that 2008 Olympics officials decided was giving an unfair advantage to swimmers who wore them.
Threatening retaliation if the Biden administration sticks with its plan to expand more export bans on sensitive technology, Xie offered his Speedo analogy during a forum in Washington on Wednesday.
A day earlier, the US Congress had finished approving a trade initiative between the United States and Taiwan. The initiative is intended to pave the way to deeper talks on technological partnership and bilateral trade deals. That didn’t go down well with Beijing either.
On Tuesday it was the US Senate’s turn to vote on and pass a bill that aims to approve the first phase of the US-Taiwan Initiative on 21st-Century Trade, which was announced on May 18. As the same bill had been passed by the House of Representatives on June 21, it now awaits only the signature of US President Joe Biden before taking effect.
The government in Taipei, of course, was pleased.
“The prompt and smooth passage of the bill showed that bipartisan US lawmakers had attached a great importance to it and supported the strengthening trade and economic partnership between Taiwan and the US,” Oliver Lin, a spokesperson of Taiwan’s Presidential Office, said Wednesday. “The implementation of the trade initiative will create new opportunities for Taiwan’s economy and industries.”
Chuang Tsui-yun, Taiwan’s Minister of Finance, said the trade initiative will help Taiwan importers cut customs expenses by a total of TWD100 million (US$3.2 million) and speed up customs clearance.
Chinese state media outlets said that the trade initiative will only benefit Americans, not Taiwanese.
“The so-called US-Taiwan Initiative on 21st-Century Trade should not be called an agreement as it is only a memorandum of understanding that sets a policy direction for both sides,” the Global Times said Wednesday. “It does not include topics about tariffs and the opening of markets but the Democratic Progressive Party (DPP) is bragging about them.”
Citing some Taiwanese politicians and business people, the Global Times said Thursday there is no guarantee that Taiwan can sign a free trade agreement or a double taxation treaty with the US. It said the trade initiative focuses mainly on the areas that the US cares about, showing that the DPP had failed to stand up for Taiwan’s interests.
Li Haidong, a professor at China Foreign Affairs University, said that, as Beijing has recently resumed dialogues with Washington, both sides will talk about the Taiwan question. Li said China, while keeping Sino-US relations under control, will make clear to the US the danger of irresponsible collusion with Taiwan secessionists.
Wang Wenbin, a spokesperson for the Chinese Foreign Ministry, said on May 19 that China firmly opposes all forms of official interaction with the Taiwan region by countries having diplomatic ties with China, including negotiating or concluding agreements with implications of sovereignty and of official nature.
In June of last year, the US and Taiwan began bilateral trade talks for the trade initiative. Both sides met initially last November and held a four-day negotiation in January this year.
The first phase of this agreement covers five areas, including customs administration and trade facilitation, good regulatory practices, domestic services regulation, anticorruption and small-and-medium-sized enterprises.
In fact, researchers in the US and Taiwan also agreed that this trade initiative may not benefit either party much unless Taiwan can join the Indo-Pacific Economic Framework (IPEF).
The US-Taiwan Business Council, a Chicago-based non-profit organization, said in a statement on July 8 last year that Taiwan should be a key target for exploring further bilateral trade deals – including negotiating and signing a comprehensive bilateral trade agreement. It said it hopes to see Taiwan on a path to be included in the IPEF.
The council said further discussions on a digital economy agreement, regulatory practices and standards, a semiconductor supply chain agreement and a double taxation agreement are at the top of the priority list for US firms.
“US companies are interested in exploring how the trade initiative could potentially play a role in enhancing bilateral supply chain security, particularly in the semiconductor sector,” it said. “Taiwan’s technology and semiconductor industries play such crucial roles in the US-Taiwan trade relationship, and Taiwan therefore must be part of all US attempts to improve the security and resiliency of the broader technology and ICT supply chains.” Those initials stand for information and communications technology.
In a report published last September, Kristy Hsu, director of the Taiwan ASEAN Studies Center at Chung-Hua Institution for Economic Research, suggested the US:
“The United States’s CHIPS Act helps attract investments of TSMC, Samsung, SK, Intel, and other major companies. But when these fabs begin operation, the fabricated chips will need to be shipped back to Asia for APT,” due to little assembly capacity and “no advanced packaging and testing at all in the US,” she said – adding that Taiwan can help the US in this area.
In May last year, the Biden administration launched the IPEF but did not include Taiwan as a founding member. Founding nations include Australia, Brunei, Fiji India, Indonesia, Japan, South Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand and Vietnam.
Meanwhile, the US continues to push forward its “de-risking” strategy with China.
US Treasury Secretary Janet Yellen said Monday that the US will limit its coming investment curbs against China to the semiconductor, artificial intelligence and quantum computing sectors and will not extend them to the biotechnology and clean energy industries.
Predictably, that concession was not sufficient for Beijing, in view of media reports that the curbs in the three sectors that are still planned will be announced by the end of August and implemented in 2024.
“China is not afraid of and will not evade competition, but the United States’s so-called competition is obviously unfair,” Chinese ambassador Xie said at the forum on Wednesday. “First, the US used security reasons to ban Huawei’s products. Second, the US gathered its allies to beat up China.” And, he added, “Third, the US banned the exports of 14nm or below chips to China.”
Xie said the US has so far sanctioned 1,300 companies and made a large number of people lose their jobs. He said the Chinese government won’t sit on its hands in the face of US actions.
The China Semiconductor Industry Association said Wednesday that it “believes that any damage to the current global supply chain, which developed over the past decades alongside the process of globalization, could create inevitable and irreparable harm to the global economy.
It warned that the coming US investment curbs against China will jeopardize the competitiveness of the US chip firms and threaten the globalization of the semiconductor sector.
Read: China-US trade war slows down a bit – baby steps?
Read: Taiwan pushes FTA after closing US trade deal
Follow Jeff Pao on Twitter at @jeffpao3
