Asian Regional Public Debt Forum

Kuala Lumpur, Malaysia

5 November 2009

Progress on Asian Bond

Markets Initiative (ABMI)

Mr. Masato Miyachi, Senior Advisor

Office of Regional Economic Integration
Asian Development Bank
Outline of Presentation
 Bond Market Overview
 Asian Bond Markets Initiative (ABMI)
– What is ABMI?
– Background on Asian Financial Crisis
– ABMI Objectives
 ABMI Milestones Updates, Focus and
Framework
 Key Issues – Regional Bond Market
 ABMI Going Forward – New ABMI Roadmap
 ADB’s Role and Contribution to ABMI

2
Bond Market: Overview
1. Bond issuances in the region have grown.
Since 1997, the total outstanding amount of local
currency bonds outstanding in ASEAN+3 (ex-
Japan) has increased steadily from US$150 bn to
over US$3.9 trn by end of June 2009.

2. However, despite the encouraging growth, the

local currency bond market remains relatively
small and less liquid compared to more
developed countries.

3. Cross Border investment to bond within the

region is still small.

3
Asian Bond Market Overview
Size of outstanding local currency bonds (in $ billions)

This indicator shows the absolute amount of local currency (LCY) bonds of P.R. China, Hong Kong, China, Indonesia, Japan, Korea,
Malaysia, Philippines, Singapore, and Thailand outstanding in USD, categorized as government, corporates, and financial
institutions. Government bonds include obligations of the central government, local governments, and the central bank. Corporates
comprise both public and private companies including international organizations. Financial institutions comprise both private and
public sector banks and other financial institutions. Bonds are defined as long-term bonds and notes, treasury bills, commercial
paper, and other short-term notes.
Source: AsianBondsOnline (http://asianbondsonline.adb.org)
4
Asian Bond Market Overview
Size of outstanding ASEAN+3 local currency bonds (in $ billions) (1/3)
China Hong Kong, China

Indonesia Japan

5
Asian Bond Market Overview
Size of outstanding ASEAN+3 local currency bonds (in $ billions) (2/3)
Republic of Korea Malaysia

Philippines Singapore

6
 Asian Bond Market Overview
Size of outstanding ASEAN+3 local currency bonds (in $ billions) (3/3)

Thailand Viet Nam

In many ASEAN+3 countries, bond markets are constantly growing

after the Asian financial crisis.

Source: AsianBondsOnline (http://asianbondsonline.adb.org)

7
 Asian Bond Market Overview
Bonds Outstanding in Major Markets
2008 1996

LCY Bonds LCY Bonds

(USD trillion) Outstanding % of World Total Outstanding % of World Total

United States 24.62 41.3% 10.93 42.8%

Japan 11.08 18.6% 4.46 17.4%

France 2.92 4.9% 1.30 5.1%

Germany 2.59 4.3% 1.89 7.4%

UK 1.22 2.1% 0.68 2.7%

Emerging East Asia 3.69 6.2% 0.50 2.0%

of which: PRC 2.21 3.7% 0.06 0.2%

Emerging East Asia excl. PRC 1.48 2.5% 0.44 1.7%

of which: Republic of Korea 0.80 1.3% 0.28 1.1%

Brazil 0.86 1.4% 0.30 1.2%

India 0.43 0.7% 0.08 0.3%

Source: Bank for International Settlements and AsianBondsOnline

8
 Asian Bond Market Overview
Corporate Bonds Outstanding

Financial
All Issuers Governments Institutions Corporates

LCY Bonds
Outstanding % of World % of World % of World
(USD Trln) Total % of World Total Total Total

United States 24.62 41.3% 26.5% 59.4% 44.1%

Japan 11.08 18.6% 30.6% 5.1% 11.6%

France 2.92 4.9% 4.8% 5.0% 4.9%

Germany 2.59 4.3% 4.6% 4.0% 4.5%

UK 1.22 2.1% 2.8% 1.6% 0.3%

Emerging East Asia 3.69 6.2% 7.2% 4.3% 8.3%

of which: PRC 2.21 3.7% 4.8% 2.6% 2.8%

Emerging East Asia excl. PRC 1.48 2.5% 2.4% 1.7% 5.5%

of which: Republic of Korea 0.80 1.3% 1.1% 1.3% 3.3%

Brazil 0.86 1.4% 1.8% 1.3% 0.1%

India 0.43 0.7% 1.3% 0.1% 0.1%

Source: Bank for International Settlements and AsianBondsOnline

9
 Asian Bond Market Overview
Growth of Emerging East Asia Bonds Outstanding
Growth of Emerging East Asian LCY Growth of Emerging East Asian LCY
Government Bond Markets in 1H09 (y-o-y %) Corporate Bond Markets in 1H09 (y-o-y %)

Legend: EEA – Emerging East Asia

Note:
1. Calculated using data from national sources.
2. Growth rates are calculated from local currency (LCY) base and do not include currency effects.
3. Total emerging East Asia growth figure is based on end-June 2009 currency exchange rates and do not include currency effects.
Source:
People’s Republic of China (Chinabond); Hongkong, China (Hong Kong Monetary Authority); Indonesia (Indonesia Stock Exchange and Bank Indonesia); Republic of
Korea (Bank of Korea and KoreaBondWeb); Malaysia (Bank Negara Malaysia); Philippines (Bureau of the Treasury and Bloomberg LP); Singapore (Monetary Authority
of Singapore and Bloomberg LP); Thailand (Bank of Thailand); and Viet Nam (Bloomberg LP).

10
 Asian Bond Market Overview
Bonds as % of GDP
(in %) 1H08 1H09

China, People's Rep. of 56.8 52.4

Hong Kong, China 45.0 51.4

Indonesia 19.8 19.3

Korea, Rep. of 93.0 110.9

Malaysia 96.9 81.3

Philippines 35.2 36.2

Singapore 79.3 74.1

Thailand 59.6 60.6

Viet Nam 16.7 14.1

Total Emerging East Asia 61.1 58.2

Note: GDP data are from CEIC. 2007 annual GDP was used for the calculation of bonds outstanding as percentage of GDP for
1H08. 2008 annual GDP was used for 1H09.
Source:
People’s Republic of China (Chinabond); Hong Kong, China (Hong Kong Monetary Authority); Indonesia (Indonesia Stock Exchange and Bank Indonesia); Republic of
Korea (Bank of Korea and KoreaBondWeb); Malaysia (Bank Negara Malaysia); Philippines (Bureau of the Treasury and Bloomberg LP); Singapore (Monetary Authority
of Singapore and Bloomberg LP); Thailand (Bank of Thailand); and Viet Nam (Bloomberg LP).

11
What is the ABMI?

 ABMI’s aims
– To develop efficient and liquid bond markets in the region
– To foster a high degree of financial independence in Asia

 Endorsement by ASEAN+3
– ABMI was endorsed by the ASEAN+3 Finance Ministers
Meeting in August 2003 in Manila, Philippines

 Voluntary basis participation

– Participation of countries in the ABMI is on a voluntary
basis

12
Brief Background of the
Asian Financial Crisis
Causes:
– Lack of well developed bond
market or “weak fundamentals”
– Over-dependence on bank
borrowing
– Double mismatch (maturity/
currency)

13
ABMI Objectives

 Develop a robust bond market

 Lessen dependence on bank borrowings
 Avoid the double mismatch of maturity
and currency
 Re-channel more Asian savings into
Asian economies
 Promote regional financial harmonization
and integration

14
 ABMI Milestones Update
Total outstanding bonds issued in Asian currencies
amounted to $3.9 trillion. That’s 300% growth since
ABMI was launched in 2003.

Highlights of more favourable policy environment (1/3):

1. To facilitate the increase in bond issuances, new rules
were instituted in countries like Indonesia, Philippines &
Viet Nam.
2. Thailand allowed foreign governments and FI’s to issue
Baht bonds onshore and adopted new policies to cut after-
tax interest costs and simplify registration.
3. Domestic rating agencies were all trained on international
best practice in rating and a handbook was made to help
harmonize rating practices.

15
 ABMI Milestones Update
Highlights of more favourable policy environment (2/3):

4. ASEAN+3 has reached an agreement on the option for the

establishment of credit guarantee mechanism (CGIM) for
local currency denominated bonds and is finalizing the
agreement on key elements of CGIM. Establishment of
CGIM is expected to be announced in the next ASEAN+3
Finance Ministers’ Meeting in May 2010.
5. The pilot project on bond financing for infrastructure
project aims to issue cross-border bond of Lao
Government denominated in Thai Baht by May 2010.
6. ADB, in its progress report on its Study on Harmonization
of Bond Standards in ASEAN+3, proposed to establish the
ASEAN+3 Government Bond Market Forum (AGBMF). The
AGBMF is envisaged to identify issues toward
harmonization and develop a roadmap for addressing these
issues.
16
 ABMI Milestones Update
Highlights of more favourable policy environment (3/3):

7. A Regional Bond Market Seminar on Enhancing Regulatory

Framework and Regional Cooperation among ASEAN+3 countries
would be held in Kuala Lumpur on 2-3 December 2009. The
seminar would focus on critical issues faced by intermediaries of
both primary and secondary markets in the region.
8. A Group of Experts (GoE) has also been established to further
study the possibility of establishing a regional settlement
intermediary (RSI) or its alternative. The GoE is expected to
submit final recommendations by April 2010.

17
 ABMI: Focus
Two main areas being addressed by ABMI:
1. Facilitate access to market via wider variety of bond issuers
and investors in Asia
2. Enhance market infrastructure for bond markets

Market Infrastructure:
•Guarantee Mechanism •Information Dissemination • Legal and Regulatory
•New Bond Products in Asia •Clearing & Settlement Framework
•Credit Rating Systems •Policy Dialogues among members

Issuers Bond Products Investors

• Asian Governments •Domestic
• Local Currency Denominated
• Government Agencies & Bonds •Regional
Financial Institutions •International
• Structured Bonds & Asset
• Multilateral Development Backed Securities
Banks •Institutional
• Corporations •Retail
• Special Purpose Vehicles

18
ABMI Framework & Role of Task Forces
ASEAN+3 Finance Ministers Meet annually

ASEAN+3 Deputy Finance Ministers Meet semi-annually

ABMI Steering Group -Monitor progress and coordinate

future plans

Task Forces

TF 1 TF 2 TF 3 TF 4 TACT

Promoting Issuance Facilitating the Improving Improving Related Technical

of Local Currency Demand of Local Regulatory Infrastructure for Assistance
Denominated Bonds Currency- Framework the Bond Market Coordination
-Credit guarantee and Denominated -Strengthening -Infrastructure for Team
investment mechanism Bonds regulatory and securities settlement
-Promotion of Asian -Development of supervisory framework -Increasing liquidity of
Currency Note investment for securities bond markets
Programme environment for -Facilitating -Fostering credit
-Promoting issuance of institutional investors collaboration among culture
structured finance -Development of SROs in the region -Developing
instruments repo markets -Improving bankruptcy professional services
-Enhancing cross- procedures related to
border transactions bond transaction
-Information -Promoting application
dissemination of international
accounting and
auditing standards

19
Key Issues - Regional Bond
Markets
 Challenges for bond markets in the region going forward

 The need to:

1. Strengthen financial market infrastructure
2. Improve liquidity
3. Improve legal and regulatory frameworks to ensure
certainty and transparency
4. Remove constraints to market entry and investment
and encourage broadening investor diversity (to
promote greater demand for local currency bonds)
5. Develop hedging instruments
• Derivative, swap and repo markets
6. Increase regional cooperation
• to better understand the links between changes in
the real economy and those in financial markets
20
ADB’s Role and Contribution to
ABMI – TF1 (1)
TF 1 – Promoting Issuance of Local Currency Denominated
Bonds (Promoting Issuance of Structured Finance Instruments)

New Studies started in 1st half 2008:

1. Bond Financing for Infrastructure Projects in
ASEAN+3 Region
 focuses on how bond can finance infrastructure projects in
transportation, energy, and water sectors in the region
 aims to facilitate cross border and domestic issuance s in the
ASEAN+3 region

2. Developing Securitization Markets in ASEAN+3

Region
21
ADB’s Role and Contribution to
ABMI – TF1 (2)
TF 1 – Promoting Issuance of Local Currency Denominated
Bonds (Credit Guarantee and Investment Mechanisms)

1. 2 TAs preparatory to the establishment of CGIM

2. ASEAN+3 Foreign Ministers Meeting in

May 2009 endorsed the creation of CGIM
as an ADB Trust Fund with an initial
capital of $500 million

3. ADB team is now preparing for the

establishment of CGIM and start of operations

22
ADB’s Role and Contribution to
ABMI – TF1 (3)
TF 1 – Promoting Issuance of Local Currency Denominated Bonds
(Credit Guarantee and Investment Mechanisms)
4. ASEAN+3 Deputy Finance Ministers meeting in
Nov 2007 chose the fund scheme with ADB
trustee.
Detailed proposal is now being prepared by ADB
and its consultants
– ASEAN+3 and ADB prepare for the launch of the
fund by 2010
– Agenda: business model, amount to be invested,
term, governance
– Proposal: operational and investment policy, product mix,
financial analysis, capital structure and draft implementation plan

23
ADB’s Role and Contribution to
ABMI – TF2
TF 2 – Facilitating the Demand of Local Currency Denominated Bonds
1. Conference “Investing in Asian Bonds Conference 2007” in
Tokyo (Nov 2007)

ADB hosted a conference to promote Asian local currency

bonds
• Co-hosts: Ministry of Finance, Thailand & Ministry of Finance,
Japan
• Objectives:
– Tap into the biggest Asian savings market
– Promote awareness of ASEAN+3 bonds among
investors in Japan
– Provide a platform for information sharing among
market participants and government officials
– Provide networking opportunities for market
participants and government officials
• Audience: institutional investors, etc, 450 participants
24
ADB’s Role and Contribution to
ABMI – TF4 (1)
TF 4 –Improving Related Infrastructure for the Bond Market
(Infrastructure for Securities Settlement)
1. Completed study on: “Bond Market Settlement and Emerging
Linkages in Selected ASEAN+3 Countries” (Phase 1) in June 2005.
The study recommends to:
a. Increase transparency
b. Comply with international standards
c. Advance regional cooperation and
d. Study Risk Reduction further → Phase 2 study

2. Phase 2 Study on “Minimizing Foreign Exchange Settlement Risk in

the ASEAN+3 Region” was completed in 2007.
The Study:
a. Reviews various risks especially Forex settlement risks in cross border
clearing and settlement systems.
b. Identifies options and assess each option to reduce Forex
settlement risks arising from bond transactions.

25
ADB’s Role and Contribution to
ABMI – TF4 (2)
TF 4 –Improving Related Infrastructure for the Bond Market
(Infrastructure for Securities Settlement)
3. ADB organized the “Asia Bond Clearing and Settlement
Conference 2007” in April 2007 in Singapore.
a. 20 speakers and 150 participants from 16 countries of the region,
Europe and US
b. Discussed:
• The future direction for bond clearing and settlement in the region
• Setting up a group of experts to move this initiative further

4. The “Group of Experts” (GoE) Established

• Established in 23 April 2008 to look into the feasibility of the regional
bond settlement intermediary, and identify barriers to cross border
bond settlements and clearing, and propose a set of recommendations
in April 2010 to ASEAN+3.
• More Details:
– GOE Website: http://asean3goe.adb.org
– ADB News Release, 17 September 2008
26
 ADB’s Role and Contribution to
ABMI – TF4 (3)
8. Singapore (United Overseas Bank
A. GoE National Members and Stock Exchange)
1. PR China (China Government 9. Thailand (TSD and Bangkok Bank)
Securities Depository & Trust
Clearing, and HKMA) 10. Viet Nam (Viet Nam Securities
Depository)
2. Indonesia (KPEI – Central
Securities Depository and KSEI – B. GoE Intl Members
Central Counterparty) 1. Asian Development Bank
3. Japan (Merrill Lynch & JASDEC) 2. Citibank, N.A.
4. Korea (KSD) 3. Clearstream
5. Lao PDR (Observer) 4. Euroclear Bank S.A. / N.V.
6. Malaysia (CIMB and Deutsche 5. J.P. Morgan, Singapore
Bank)
6. Mizuho Corporate Bank, Ltd.
7. Philippines (PSSC and Deutsche
7. Standard Chartered Bank
Bank)
8. S.W.I.F.T.
9. CLS
27
ADB’s Role and Contribution to
ABMI – TF4 (4)
TF 4 –Improving Related Infrastructure for the Bond Market
(Fostering Credit Culture)

5. Continued efforts toward enhancing the credibility and visibility

of the local Credit Rating Agencies (CRAs) in the region.

6. Ad-hoc forum “Advancing Further the Credit Rating System in the

Region” held on November 2006 in Manila, Philippines, and
discussed:
• measures to promote further utilization of local CRAs in the region
• demands and efforts for ratings harmonization
• preparation for Basel II

28
ADB’s Role and Contribution to
ABMI – TF4 (5)
Task Force 4 –Improving Related Infrastructure for the Bond Market
(Fostering Credit Culture)

7. New technical assistance started January 2007 aims to:

• enhance technical competence and institutional capacity of
selected DCRAS in Asia
• monitor and report on status of regulatory frameworks for
DCRA operations in selected countries
• enhance comparability and harmonization of credit rating
standards among DCRAs in the region
• prepare a handbook on international best practices of credit
rating (published in Q4 2008)

29
 ADB’s Role and Contribution
to ABMI – Capacity Building
 Joint ADB – JICA* Training Program on Bond Market Development
 Held in Tokyo, Japan on 5-15 November 2007 and
24 November - 13 December 2008.
 Attended by 14 ASEAN officials from the regions’ central bank,
securities and exchange commission and ministry of finance.

 Capacity Building for Bond Market Development in ASEAN +3

 Three-week training course on bond market development
 Target participants - middle management officials from the ministry of
finance, central bank, financial services authority and securities and
exchange commissions in the region
 Training program to run for 3 years (2008-2010)
 Training programs proposed to be co-organized with other ASEAN+3
countries.

(* - Japan International Cooperation Agency)

30
ADB’s Role and Contribution to ABMI
Information Dissemination (1)
Asian Bonds Online Website
(http://asianbondsonline.adb.org)
• Launched on May 15, 2004, one-stop information site to
disseminate information on ASEAN+3 bond markets
• Completed studies of working groups can be
downloaded here
• Registered close to 100,000 visitor sessions for
the month of May 2009.

 What makes Asian Bonds Online unique?

• Free Access
• Updated Government Policies and Regulations
• How to Buy Bonds
• Asian Bond Glossary

31
ADB’s Role and Contribution to ABMI
Information Dissemination (2)
Asian Bond Monitor

1. Quarterly publication (12 issues)

2. Reviews the development of ASEAN+3 local
currency bond markets.
3. Latest issue: September 2009
4. Downloadable at Asian Bonds Online Website

32
ADB’s Role and Contribution to
ABMI Bond Issue (1)
US$10 Billion Equivalent Asian Currency Note
Programme

1. Launched in Sept 2006 with Singapore and

Hong Kong

2. Aims to establish a unified platform for

issuers to tap regional markets

3. Status:
 Singapore, Hong Kong and Malaysia: approved
 Thailand, Philippines and Korea: in the pipeline, under discussion
with the governments
 Other countries: targeting PR. China next

33
ADB’s Role and Contribution to
ABMI Bond Issue (2)
US$10 Billion Equivalent Asian Currency Note
Programme

4. Under this scheme, Asian currency bonds are issued by

ADB in their domestic markets under a single unified
framework

5. With a common set of documents governed by English

law, which is already agreed by the government

6. This Programme is fully consistent with efforts under

the ASEAN+3 Asian Bond Markets Initiative (ABMI) to
harmonize regulations in the region and to establish
deeper and more liquid bond markets

34
 ADB’s Role and Contribution to
ABMI Bond Issue (3)
Local Currency Bond Issuance by ADB (as of April 2009)
Country Coupon Amount Issue Tenor Country Coupon Amount Issue Tenor
% Date (Yrs) % Date (Yrs)

Kazakhstan* 6.80% KZT 6.0 B Aug-

Aug-07 5 Thailand 5.54% THB 1.0 B Sep-
Sep-06 10

Philippines 5.23% PHP 5.0 B May-

May-07 5 Malaysia 4.265% MYR 0.5 B Apr-
Apr-06 5

Malaysia 4.00% MYR 0.5 B Feb-

Feb-07 10 Philippines 0.00 PHP 2.5 B Nov-
Nov-05 5

Singapore 3.27% SGD 0.25 B Feb-

Feb-07 5 China 3.34% RMB 1.0 B Oct-
Oct-05 10

Hong Kong 4.00% HKD 1.5 B Jan-

Jan-07 5 Thailand 3.87% THB 4.0 B May-
May-05 5

Hong Kong 4.28% HKD 1.0 B Sep-

Sep-06 3 Malaysia 3.94% MYR 0.4 B Nov-
Nov-04 5

Singapore 3.335% SGD 0.3 B Sep-

Sep-06 5 India 5.4% INR 5.0 B Feb-
Feb-04 10

Thailand 5.34% THB 5.5 B Sep-

Sep-06 5

* - issued in the Eurobond market

Source: ADB Treasury Department
35
 ADB Future Work Plan over
the Medium Term (1)
 Continued support for the establishment of regional credit
guarantee and investment mechanism.
 Continue support for the group of experts to explore the
possibility of establishing an RSI.
 Provide support for infrastructure bond financing and
securitization of remittances as pilot projects to help
accelerate the creation of new debt instruments.
 Disseminate ASEAN+3 and ADB efforts to promote the
development of the regional bond market under ABMI
through road show and on the Asian Bonds Online
website to other market participants (including
investment banks and enterprises seeking to issue bonds)

36
 ADB Future Work Plan over
the Medium Term (2)
 Improve the quality, comparability, and consistency of
local currency bond market data provided on Asian Bonds
Online.

 Expand data base on the website to include aggregate

institutional investors’ capital flows, and currency and
maturity structures, including debt structures and
composition of capital flows, to identify underlying
weaknesses and risks in individual bond markets, and

 Provide new technical assistance in implement the four

key areas of the new ABMI Roadmap.

37
Prospects of the Regional Bond
Market over the Medium-term
– Economies in the region more resilient and are
expected to grow
– ASEAN+ 3 countries continue to deepen reforms
to support the development of the domestic bond
markets with the support of ADB
– Market infrastructure such credit guarantee for
local currency bonds and regional settlement and
clearance system would be in place
– Local bond markets are gradually maturing
– Credit ratings have significantly improved
– Investor base is becoming broader
– Attractive risk-reward tradeoff
– Asian debt is maturing as an asset class

38
Thank You

39
For More Information:

Mr. Masato Miyachi, Senior Advisor

Office of Regional Economic Integration (OREI)
Asian Development Bank
mmiyachi@adb.org
+63-2 632-6832
Web site: www.adb.org