Deregulation May Invigorate Taiwan's Formosa Bond Market

(Bloomberg) -- Taiwan could be the next go-to place for dollar funding for bond issuers, after authorities loosened regulations on debt issuance. 

The government expanded from this month the roster of issuers that can sell Formosa bonds without prior approval, to all units of lenders listed on bourses belonging to the World Federation of Exchanges -- an association that represents 64 exchanges including Nasdaq and Euronext. Sales of such notes were previously limited to banks on 14 overseas exchanges.

Market participants expect that the relaxation in rules will help revitalize the island’s debt market. Issuance of corporate debt sold in Taiwan but denominated in foreign currency slowed last year, with dollar Formosa note sales declining to $40 billion from $48 billion in 2016, according to Bloomberg-compiled data.

“The deregulation will certainly help to invite new foreign issuer as well as repeat issuers, which would help the issuance size increase,” said Michelle Lai, head of capital markets at Standard Chartered Bank (Taiwan) Ltd.

About 99 percent of Formosa bonds sold last year were denominated in the U.S. currency, according to Bloomberg-compiled data. The $40 billion in sales last year compared with a record $322 billion of all dollar notes issued by Asian institutions outside of Japan during the period.

Already, Qatar National Bank and Abu Dhabi Commercial Bank issued dollar bonds in Taiwan last week. South Korea’s Woori Bank priced $300 million of five-year Formosa notes at 87 basis points over the three-month London interbank offered rate. The lender said it got $900 million of orders from 55 investors for the offering.

South Korea’s biggest issuer, Export-Import Bank of Korea, is interested in returning to Formosa bonds, then-treasurer Yoon Hee-sung said in an interview early this month. Taiwan has abundant foreign-currency reserves and high demand for Korean notes from local financial institutions, he said. Yoon is now an executive director of Kexim’s new growth business finance group.

Kookmin Bank is also closely monitoring market conditions and is ready to tap the cash-rich investor base in Taiwan whenever the lender feels the need, said Minhyuk Kang, the bank’s general manager of the capital market department.

--With assistance from Miaojung Lin

To contact the reporters on this story: Narae Kim in Hong Kong at nkim132@bloomberg.net, Kyungji Cho in Seoul at kcho54@bloomberg.net.

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Andrew Monahan at amonahan@bloomberg.net, Ken McCallum

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