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Evolution of Taiwan Corporate Bond Market
- Ideas from Taiwan for Development of Other Regional Bond Markets
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Evolution of Taiwan Corporate Bond Market - Ideas from Taiwan for - - PowerPoint PPT Presentation
Evolution of Taiwan Corporate Bond Market - Ideas from Taiwan for - - PowerPoint PPT Presentation
Evolution of Taiwan Corporate Bond Market - Ideas from Taiwan for Development of Other Regional Bond Markets Albert S.T. Ding Executive Vice President, Fixed Income KGI Securities Corp. Content I. Taiwan Bond Market Overview II. Evolution of
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Fixed Income Investment Facilities in Taiwan
tenors within Government Bonds Government bonds Municipal bonds Government bonds Municipal bonds 30yrs 30yrs
- Taiwan Bond
Market Overview
- Evolution of
Corporate Bond Market
Corporate Bonds Corporate bonds (public sector) Corporate bonds (private sector) Convertible bonds (asset swaps) Preferred shares (fixed income type) Corporate bonds (public sector) Corporate bonds (private sector) Convertible bonds (asset swaps) Preferred shares (fixed income type) 10yrs 10yrs Bank Debentures Senior bank debenture Subordinated bank debenture Senior bank debenture Subordinated bank debenture 10yrs 10yrs Supranational NTD Bonds Supranational NTD Bonds 10yrs 10yrs Supranational NTD Bonds ABS, MBS, CLO ABS, MBS, CLO 8yrs1 8yrs1 Securitization Products
- 1. Estimated
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Outstanding Volume of Straight Bond Market
Date: 2004/2 Source: KGI Securities
- Taiwan Bond
Market Overview
- Evolution of
Corporate Bond Market
Unit: NTD Billion 19951996199719981999 2000 2001 2002 20032004.2
Supranational Bonds Bank Debentures Corporate Bonds Gov't Bonds
861 1480 2639 92 707 1179 97 92 556 3 113 149
500 1000 1500 2000 2500 3000
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Supranational Bonds 3.31% Bank Debentures 12.01% Corporate Bonds 26.15% Gov't Bonds 58.54%
Percentage Breakdown of Straight Bond Market
Date: 2004/2 Source: Statistics from GreTai Securities Market , SFC, and CBC
- Taiwan Bond
Market Overview
- Evolution of
Corporate Bond Market
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Monthly Turnover Rate of Bond Instruments
Government Bond Corporate Bond Supranational NTD Bond Monthly Turnover Rate 225.60% 13.48% 38.86% 0% 50% 100% 150% 200% 250%
Period: Year 2003 Source: KGI Securities
- Taiwan Bond
Market Overview
- Evolution of
Corporate Bond Market
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Average Monthly Turnover of Government Bonds (Repo trading only)
305% 380% 303% 294% 296% 267% 248% 199% 0% 50% 100% 150% 200% 250% 300% 350% 400% 1997 1998 1999 2000 2001 2002 2003 2004
Period: 1997- 2004 Source: KGI Securities
- Taiwan Bond
Market Overview
- Evolution of
Corporate Bond Market
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2004 Government Bond Dealer Composition
- Government Bond Dealer is licensed to participate
government bond primary auction.
Insurance Company, 4 Foreign Bank, 2 Bank, 25 Bill Finance, 13 Trust & Investment Corporation, 2 Securities House, 31
- Taiwan Bond
Market Overview
- Evolution of
Corporate Bond Market
Period: 2004 Source: KGI Securities
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Composition of government bond primary market bid ratio
- Taiwan Bond
Market Overview
- Evolution of
Corporate Bond Market
Period: 1992-2004 Source: KGI Securities
53.46 49.37 51.47 64.98 40.22 51.2 35.57 24.19 33.63 34.48 37.24 41.01 32.77 29.03 40.36 38.28 30.45 54.29 44.31 46.11 55.67 41.45 39.71 27.58 27.99 45.26 16.47 19.1 24.02 22.24 28.36 28.82 19.87 17.51 10.27 10.25 4.57 5.49 4.49 1.85 3.25 1.3 1.68 5.68
0% 20% 40% 60% 80% 100% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Bank Securities House Bill Finance Trust and Investment Corporation Insurance
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Repo is the mechanism to broaden the market participation
- Taiwan Bond
Market Overview
- Evolution of
Corporate Bond Market
A sizable repo market will encourage securities
house and investment bank to join the bond market due to the lower funding cost (compared with funding by bank loan).
OTC setting up a simplified standard repo contract
creates an easy and efficient trading platform, which enables securities house and investment bank applying repo as their funding tool.
The advantage of tax exemption lures individuals to
enter the repo contracts in a swarm.
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Summary
- In addition to government bonds, corporate bonds, and
bank debentures, Taiwan has a nine year history of supranational NTD bond issuance and an one year history
- f securitization products.
- Government bonds as a percentage of total outstanding
bonds has decreased from 83% ten years ago to 58% as at the end of 2003. 42% of of total bonds outstanding now comprise of corporate bonds, bank debentures, and supranational bonds.
- Huge volume of repo transactions coupled with full
- Taiwan Bond
Market Overview
- Evolution of
Corporate Bond Market
participation of securities houses and bill finance companies have resulted in high turnover rate for government bonds.
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Milestone Events in the Evolution of the Taiwan Corporate Bond Mkt
1993 : First Unsecured Corporate Bond Issuance 1993 - 1994 : Birth of Bond Funds 1994 : First Bull-Bear Floating Rate Note Issuance 1995 : First Supranational NTD Bond Issuance 1997 : Asian Financial Crisis 1998 : Taiwan Local Financial Crisis First Corporate Bond Default Introduction of Local Credit Rating Agency 2001 : Elimination of Securities Transaction Tax
- Taiwan Bond
Market Overview
- Evolution of
Corporate Bond Market
1 1 3 3 5 1 2 6 4 6 5 5 1 8 1 8 8 1 5 3 2 5 5 3 2 7 3 8 7 5 7 6 5 6 7 2 1 6 1 5 9 5 0 1 0 0 1 5 0 2 0 0 2 5 0 3 0 0 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 .3 N o G u a ra n te e B a n k G u a ra n te e d
Unit: NTD Billion
Period: 1996 – 2004/3 Source: KGI Securities
New Issuance Amounts for Corporate Bond
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The Taiwan Debt Market
97.9 97.6 96.4 96.1 95.6 94.9 93.5 92.8 92.9 2.1 2.4 3.6 3.9 4.4 5.1 6.5 7.2 7.1 10 20 30 40 50 60 70 80 90 100 1996 1997 1998 1999 2000 2001 2002 2003 2004 Bank Loans Bonds
Period: 1996 – 2004/2 Source: CBC
- Corporate bond issuance has gradually become a more
important and viable source of funding.
Market Share (%) Outstanding Ratio
- Taiwan Bond
Market Overview
- Evolution of
Corporate Bond Market
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The Taiwan Bond Primary Market by Coupon Rate Type
300 255 132 30 186 267 64 50 100 150 200 250 300 350 400 450 500 2001 2002 2003 2004.3 Fix Structured
Period: 2001 – 2004/3 Source: KGI Securities
- Structured Coupons have become the norm of Taiwan
corporate bond, bank debenture, and supranational market.
Unit: NTD Billion Market New Issuance Amounts
- Taiwan Bond
Market Overview
- Evolution of
Corporate Bond Market
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Taiwan Corporate Bond Issuance by Credit Rating
15 36 50 65 52 10 20 40 45 26 5 10 76 72 8 7 2 4 22 15 73 64 68 56 72 50 100 150 200 250 300 1999 2000 2001 2002 2003 2002/2003 Average(%) twAAA twAA- ~ twAA+ twA- ~ twA+ twBBB- ~ twBBB+ non-rating bank guaranteed
25% 15% 32% 1% 27%
- The Taiwan bond market favors large enterprises.
- Companies with poor credit or no credit rating at all have difficulty in
issuing public bond due to regulatory constraints and more importantly, lack of investor acceptance for low grade bonds.
- Taiwan Bond
Market Overview
- Evolution of
Corporate Bond Market
Period: 1999 - 2003 Source: KGI Securities
New Issuance Amounts / Ratio for Corporate Bond Unit: NTD Billion
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Comparison of Bond Underwriters in Taiwan v.s. Other Regions
13.9 7.1 69 34.7 82.2 20.8 10 20 30 40 50 60 70 80 90 100 Asia (Japan excluded) Thailand Taiwan
Securities Houses Banks and Universal Banks
- Securities houses are the major players in the Taiwan
corporate bond market.
Period: 2003 Source: Bloomberg, KGI Securities
Market Share (%) Market Shares of Top 10 Bond Underwriters
- Taiwan Bond
Market Overview
- Evolution of
Corporate Bond Market
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Summary Benefits of having securities firms dominate a corporate bond primary market:
- Focus on non-bank investors
- real capital market activity
- Provide variety of trading types and better liquidity
- Better transparency in pricing
- Taiwan Bond
Market Overview
- Evolution of
Corporate Bond Market
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Summary Some factors behind the competitiveness of Taiwanese securities firms in the corporate bond primary market:
- Strong repo liquidity provides adequate and reliable
financing.
- Bond funds have become the major partners for
securities firms, as they rely on securities firms for distribution channel. Bond funds are also the key investors of corporate bond primary market issues.
- Taiwan Bond
Market Overview
- Evolution of
Corporate Bond Market
- Over the past decade, securities firms have enjoyed