Asean needs to retain and mobilise its vast savings and surpluses

Currently, ASEAN boasts a combined GDP of US$2 trillion and has achieved an average annual GDP growth of 6 per cent-7 per cent over the past decade. If ASEAN were a single entity, it would rank in the world’s top 10 economies. According to Standard & Poor’s, the economic outlook for ASEAN remains relatively bright, especially in light of the difficulties facing other parts of the world. Standard & Poor’s forecasts real GDP growth of 4 per cent-6 per cent for Southeast Asia’s major economies of Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam in both 2013 and 2014. 

At a seminar hosted by S&P today, Vorapol Socatiyanurak, Secretary-General of the Securities and Exchange Commission, said in his keynote speech “Due to the global financial crisis uncertainty, global capital flows, and with new investment continues to move towards Asia; which is definitely an important key driver for rapid capital market development and integration in ASEAN, apart from the imminent ASEAN Economic Community in 2015. 

Capital markets integration under the ASEAN Capital Markets Forum (ACMF)’s Implementation Plan will allow greater cross border access to investors and issuers, and helps broaden the investor base and range of products, thereby strengthening domestic capital markets and providing liquidity, scale, capacity, and ultimately puts ASEAN in the position to integrate further with the global market.

On cross border offering of debt securities initiative under the ACMF regime, it will benefit both ASEAN and non-ASEAN issuers who make cross-border offerings of debt securities within ASEAN. It will be easier for the issuers as they can comply with one common set of ASEAN standards in the preparation of disclosure documents. This is contrary to the current practices that issuers have to separately comply with each jurisdiction’s disclosure requirements. However, this initiative will not be successful with only efforts of regulators in shaping good regulatory environment. It also requires complementary efforts by the private sector to help in developing markets and products.  

Apart from the benefit of regional integration for debt securities offerings which enhances the attractiveness of ASEAN as fund raising destination, as well as underlines ASEAN securities as an asset class by raising the disclosure standards among ASEAN countries to international level, we also expect that the ASEAN scale ratings to promote broader regional market participation among investors and issuers”.

The bond markets of six major ASEAN countries, comprising Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam, have grown appreciably. According to Asian Development Bank (ADB), the ASEAN bond market size in 2012 stood at US$1.04 trillion, a growth of 18 per cent from a year ago. During the same time, the bond market in Thailand has also expanded rapidly. According to the Thai Bond Market Association (Thai BMA), total value of bonds outstanding at the end of 2012 was Bt8.4 trillion, a 20.6 per cent growth from 2011. Total value of new bond issuance in 2012 was Bt10.3 trillion, of which 13.1 per cent was from private sector. Meanwhile, the Stock Exchange of Thailand (SET) reported that total value of new equity issuance in 2012 was Bt127.6 billion (US$4.1 million), and the value of market capitalization was Bt11.8 trillion (equivalent to US$381.7 billion). 

“Notwithstanding the rapid growth in Thai capital markets, the number of Thai companies that received credit ratings from local credit rating agencies has been relatively small, approximately 20 per cent of SET-listed companies. This means that there are still a number of companies that has not raised funds via bond market, but rather relying on finstitutions.” said Dr. Santi Kiranand, President of TRIS Rating.

Santi said that several companies have yet to realise benefits of credit ratings and thus, miss an opportunity to use credit ratings as a tool to efficiently access capital markets. Companies with credit ratings are more advantageous to access funding at competitive costs through diverse funding sources. Bond financing also enhances an ability to manage and stabilize long-term funding costs.  

“Credit quality assessments published by credit rating agencies have proven to be a reliable source of information for investors. Credit ratings can also be useful in accessing regional capital markets in the future.” Currently, local credit rating agencies in ASEAN have been preparing for the upcoming ASEAN Economic Community (AEC). This includes the improvements in credit rating practices to international standards and the sharing of regional information and know-how to enhance mutual understanding and harmonization. The participation in Association of Credit Rating Agencies in Asia (ACRAA) by local credit rating agencies in ASEAN is just one of the beginning steps towards a closer integration among credit rating agencies in ASEAN for the purpose of jointly developing a robust regional capital market.

As for TRIS Rating, through the technical assistance from Standard and Poor’s in developing rating methodologies, Mr. Kiranand explained “We have entered another crucial milestone towards the advancement of credit rating services to meet the evolving structure of debt instruments, as well as to foster regional integration in order to advance credit rating services in the ASEAN bond market.” 

Surinder Kathpalia, Standard & Poor’s Managing Director, ASEAN, explained: “Currently, savings exceed investments in aggregate across ASEAN, showing the need for the region to better retain savings and surpluses within its borders and meet financing requirements for massive infrastructure projects and development to support the region’s surging population.”

According to a study by Asian Development Bank in 2012, gross national savings of ASEAN countries (estimated at 30 per cent of GDP) exceeded domestic investments by 5 per cent-10 per cent of GDP. The ADB has estimated that Asia's basic infrastructure investment needs total US$8 trillion between 2010 and 2020.

“ASEAN capital markets are among the fastest-growing around the world and are drawing increased attention from investors abroad. But more can be achieved to finance the region’s economic development and growth ambitions,” Kathpalia added.

He said Standard & Poor's recent expansion of its ASEAN regional credit rating scale to more than 120 issuers is aimed at strengthening the credit culture in the region. The ASEAN regional credit ratings provide independent opinions about the credit risk of issuers active in Southeast Asia relative to others in the region. The regional scale also expands the investable universe from strictly domestic investment opportunities to regional ones, thus helping to mobilize the deep savings pool within ASEAN.