Asian business climate worries

from CFOAsia (Dec-Jan 2008):

BUSINESS OUTLOOK SURVEY
Asia’s CFOs remain more optimistic than their U.S. and European counterparts,
but nerves are starting to fray.
By Cesar Bacani and Nan Wang

"When America sneezes, Asia catches a cold. This old saw was true enough in the last century, but it may be time for a revision.

In the latest Duke University/CFO magazine Business Outlook Survey, only 9 percent of CFOs in the United States are more optimistic about the U.S. economy than they were last quarter. In contrast, 53 percent of CFOs in Asia say they are more optimistic.

Why the difference? At least some of Asia’s finance executives believe that the region’s fortunes have now decoupled from America’s because of the economic rise of China and India, and the generally robust finances of governments, banks, corporations, and consumers." ...

"Still, the worries in the West are crossing over to Asia. Mingwei Bi, deputy finance controller at Chinese sportswear maker Anta, expects earnings to grow in the next 12 months because of the coming Summer Olympics. But he is concerned about rising inflation, a strong renminbi, and a 15 percent rise in labor costs at Anta." ...

"And the level of optimism among the region’s CFOs (outside of China) is six percentage points lower than last quarter, down 19 points from the quarter before that. Optimism among CFOs in China is down from 41 percent last quarter to 31 percent in the latest survey." ...

for the complete story see:
http://www.cfoasia.com/archives/200712-05.htm
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IS THE PARTY OVER?
Some of the exuberance is winding down, but the region’s investment bankers are still working on a long queue of IPO, M&A, and other financing deals.
By Cesar BacanI

"When India’s ICICI Bank issued a US$750 million five-year bond in January of this year, it achieved a pricing of 174.8 basis points higher than similarly dated U.S. Treasuries. Not too shabby in an environment of abundant and cheap credit. Fast forward eight months. In September, ICICI again tapped the global debt markets with another five-year fixed rate note. This time, however, it had to accept an interest rate that was a whopping 237.5 basis points above U.S. Treasuries.

And this was during a relatively calm period after the first ructions in July over the sub-prime crisis in the United States, which had caused credit markets to seize up. Had ICICI held out for a better pricing, it might now be unable to raise capital at all. In November, Chinese property developer Country Garden pulled a US$1 billion global bond issue because virtually no investor in America was buying.

So is the party over in Asia? It looks like it for offshore debt financing and private-equity fueled leveraged buyouts, at least in the short term. A bank typically holds capital equivalent to 10 percent of its loan book, meaning that a dollar of capital can potentially translate into ten dollars in loans. When bank capital is reduced because of provisions for losses arising from the subprime crisis, the bank’s ability to lend is compromised. In all, banks worldwide are estimated to have made US$66 billion in provisions, in effect shrinking the pot for loans by US$660 billion.

But the fallout has been much less pronounced in Asia, and this is stoking optimism that the party will get going in this part of the world again." ...

"While selling global bonds and raising debt funding for leveraged buyouts may be a hard slog at the moment, the region’s investment bankers say Asia’s underlying growth story remains unimpaired. True, stock markets have come down sharply from record highs, which might discourage IPOs and follow-on offerings. But, argues an investment banker who handles equity syndicates: “Asia had an absolutely phenomenal year and investors are now taking a step back to ensure expectations are brought back into sync. The drinks are finished, and we’re just getting to the next round.”

The biggest deals in Asia in the past year have been outbound M&A, led by Tata Steel’s US$13.6 billion acquisition of Anglo-Dutch behemoth Corus. Figures compiled by Thomson Financial show that outward acquisitions in Asia (ex-Japan and ex-Australia) in the year to November have breached the US$84 billion mark, which is up 99 percent from the same period last year, and is nearly 12 times the total of 2003. Singapore-headquartered companies topped the cross-border buyers’ list with US$21.5 billion, followed by India with US$20.1 billion, and China with US$18.9 billion." ...

"The year has been replete with eye-popping transactions that made it to our shortlist, among them ABN Amro’s US$11.7 billion privatization of Malaysia’s Maxis, UBS’s US$7.2 billion acquisition of LG Card for Korea’s Shinhan, Citi’s US$5.9 billion IPO of China CITIC Bank, Goldman Sach’s US$1.7 billion float of China’s Alibaba.com, Morgan Stanley’s US$1.6 billion listing of Chinese developer Country Garden, and ABN Amro’s US$1.5 billion leveraged buyout of Singapore’s UTAC by two private-equity firms." ...

for the complete story see:
http://www.cfoasia.com/archives/200712-03.htm