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     FrontPage Edition: Fri 7 July 2006

Singapore sees growth in debt capital market


Speech by Mr Ong Chong Tee, Deputy Managing Director, Monetary Authority of Singapore At the Schroders Investment Seminar, Conrad Hotel, Tokyo

An Excerpt

"Refocus on Asia"

...Since the Asian crisis, many governments started developing debt capital markets.
As a result, Asian countries have increased issuance of government debt and encouraged issuance of corporate bonds.
As at the end of 2005, total amount of government bonds outstanding was US$833b or more than five times the level in 1997.
Including corporate bonds, total market size in Asia is now US$1.7 trillion [6]. But beyond this, newer asset classes are also emerging. I will name three of the more prominent ones.
First, real estate investment trusts or REITs. These have seen explosive growth, particularly in Singapore and Hong Kong over the last 3 years.
Now more markets are also launching REITs, including Malaysia, Taiwan and Thailand. The estimated market capitalization of REITS in Asia is US$37b.
In Singapore, the market capitalization weighted-average returns since IPO have been exceptional at over 30%. The market has also moved beyond traditional REITs to other products like shipping trusts and hotels
Second, asset-backed debt instruments. This is partly the result of the REITs phenomenon, which issued a host of Collateralized Mortgage Backed Securities (CMBS).
In Singapore, there is on average, S$1.5bn of CMBS issuance every year. The underlying assets of debt instruments have also broadened. For example, Singapore recently issued debt backed by loans from small and medium enterprises.
This is due to the clear regulatory framework and environment which saw the Monetary Authority of Singapore (MAS) relaxing the leverage requirement and allowing market forces to determine the appropriate debt composition.
Singapore is also a fertile ground for CMBS development due to its stable economic environment (sovereign credit rating AAA/Stable/A-1+) and robust legal and land title system which have enabled structured finance issuers to raise highly rated debt.
However, growth and diversity in asset-backed debt instruments have not been limited to Singapore. In the last 12 months, China issued their very first Credit Linked Obligations (CLOs) and Thailand issued debt that was backed by government offices.
More assets can potentially be securitized, particularly in the area of infrastructure finance. A joint study by the World Bank and ADB estimated that East Asian countries will need to spend US$250bn per year on infrastructure over the next five years.
Most of these will be in China, India, Indonesia and Indo-China. For example, in India alone Prime Minister Manmohan Singh had said that India would need US$150 billion of investment in ports, roads, power plants and other projects to keep the economy growing at more than 8% over the next decade. And the absence of a deep bank loan market suggests that secured debt financing may be the most efficient route.
Third, private equity. According to the Centre of Asia Private Equity Research, over U$17.6b of fresh capital flowed into the Asian market, a two and a half fold increase from 2004.
Private equity investments in Asia are attracting the attention of both pension funds and institutional investors as the region grows and investors search for a way to participate in and benefit from this growth.
We are seeing a trend where more hedge fund managers are setting up offices in Asia to look for private equity opportunities in search of yields. Private equity has become a vehicle to overcome the limitations of small financial markets and market inaccessibility.
...I believe that asset markets in non-Japan Asia are in the midst of very exciting transformations. Steps are being taken to broaden and deepen capital market liquidity, improve market access and strengthen market infrastructure. Over the medium term, we can expect an even more thriving regional market place.
[6] ADB Asia Bond Monitor 2006, March 2006

Full Text of Speech

Source: News Release 4 Jul 2006

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