The global financial crisis was without doubt a watershed, impacting companies and investors alike and bringing with it sweeping changes to the regulation of banks. Among the many subtle changes in market dynamics brought about by the crisis are those seen in the debt capital markets in Asia.
Companies that had traditionally relied on bank financing experienced directly the liquidity constraints brought about by the credit crunch in 2008. As a result, many such companies became more willing to look to various other sources of financing available in the markets. This development has benefited the region's debt capital markets, which experienced a boost from a new breed of issuers – and once these issuers have entered the debt capital markets and established a set of issuing documents, they seldom look back.
The global financial crisis has also impacted investors' perception of risk. Many investors have scaled back their aspirations for the return on their investments and opted to decrease their exposure to the equity capital markets and increase the proportion of their investment portfolio allocated to the debt capital markets. These additional investors in the debt capital markets create demand and enable issuers to price their issues at favourable rates and tenors relative to bank financing.
From a regulatory perspective, banks have been subject to sweeping regulatory developments, including changes in the amount of capital required to be set aside for loans made and the measurement of the risk associated with those loans. Consequently, many banks have scaled back their lending, increased the pricing or the amount of security they require, or become more selective in terms of companies or industries.
It is against this backdrop that we feel it is useful to distribute this publication, to provide companies that have not yet had a flavour of the workings of the debt capital markets with a very brief introduction. For more seasoned market participants, we hope this publication serves as a convenient reference.
Originally published July 2014
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