Firms Resort To Bank Loans Amid Jittery Bond Market

Source : The Straits Times, Oct 1, 2007

Plunge in funds raised through bonds in wake of sub-prime crisis

SINGAPORE firms in need of funds might have to keep turning to bank loans until jitters over less traditional forms of credit clear.

The tightening of credit conditions and the increasing number of risk-averse investors in the wake of the United States sub-prime crisis, mean firms must offer better pricing to get people to buy bonds.

Those needing funds may have to turn to bank loans instead.

The result: The local bond market has been clobbered by the global financial turmoil of recent weeks, according to Thomson Financial's figures.

A record US$3.7 billion (S$5.5 billion) was raised by Singapore firms in the bond market in the three months ended June 30, but this fell to US$533.8 million in the latest July to September quarter.

One casualty was convertible bonds. These usually pay the holder interest, but they also give buyers the option to exchange the bonds for shares in the company.

One mainboard-listed firm said it decided against a convertible bond issue. This was because the premium that had to be offered to bond holders was so attractive that they could have ended up owning 40 per cent of the company at the end of the exercise.

Some of the largest convertible bonds this year include a US$655 million one from CapitaLand and GuocoLand's US$456 million instrument, both handled by JPMorgan. These formed part of the record US$1.5 billion raised from convertible bonds in the second quarter.

But in the third quarter, only US$110.4 million was raised from two convertible bond deals. These took place in July - property developer SoilBuild Group Holdings' $60 million, four-year issue and KS Energy Services' five-year, $96.8 million zero-coupon convertible bond.

There were no convertible bond issues recorded for August - when the force of the sub-prime panic was first felt - or for last month. Golden Agri-Resources postponed a US$400 million convertible bond issue last month.

Mainboard-listed Pine Agritech announced a 2.3 billion yuan (S$456.6 million) convertible bond issue in July, but Thomson Financial did not include this as the firm is classified as a China business.

Mr Philip Lee, the chief executive of JPMorgan's investment banking unit in South- east Asia, said: 'For the first six months of this year, volumes have been extraordinarily high. The market seems to be taking a breather and a 'wait-and-see' attitude.

'Even though August is traditionally a slow month, the credit market conditions and the volatility had a further impact on volumes.'

But the issue does not seem to be a lack of funds.

DBS Bank head of fixed income Clifford Lee said: 'General bond issuances have been put on hold due to the lack of price transparency in the market, not for a lack of available funds, especially in Asia.'

He added: 'The loan market in Asia is more insulated from the credit market volatility as the banks in Asia are still cash-rich and under-lent in the region.'

Mr Lee also said companies 'are backing off until it becomes clearer where credits will be re-priced to'.

Bankers say the next few weeks will shed more light on the prospects. JPMorgan's Mr Lee said: 'Hopefully, the credit market conditions will stabilise in October and the volumes will make a return.'

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STILL FUZZY

'A clearer picture is likely to surface in mid-October when the major international and US banks disclose their sub-prime exposures along with their third-quarter results.'
MR KAN SHIK LUM, DBS head of equity capital markets