The Asian Bond Markets Initiative (ABMI)

Ministry of Finance, Japan

OECD-ADBI 9th Tokyo Round Table on Capital Market Reform

26-27 February 2008, Tokyo, Japan

1

Background

– High savings in many Asian countries were not efficiently utilized.

– Bond markets in the region --- underdeveloped

– Dominant financing tools --- short-term bank loans provided by the

foreign capital

Background and Purpose of the ABMI

The savings deposited in local banks in the region have been funneled into

international financial centers and then back to the region in the form of

dollar-denominated short-term capital, which is used for local currency-

denominated long-term investment.

⇒ maturity and currency mismatches (“double-mismatch”)

Purpose

– To enable the private sector in Asia to raise and invest long-term capital

without maturity and currency risks.

Major issues of ABMI

[ １．Diversification of issuers ]

Credit enhancement

toward bond issuing

Infrastructure

Regional Rating Agencies

Market infrastructure

（settlement etc.）Development of legal systems

（securities laws etc.）

Utilization of existing guarantee providers (e.g. JBIC)

New credit guarantee mechanism

Information dissemination mechanism

technical assistance

[ ２．Enhancing Bond Market Infrastructure ]

（Issuance of bonds）Government Agencies

（e.g. JBIC ）

International Financial Institutions

（World Bank、ADB、IFC）

Government／

Government Agencies Global Enterprises

Local Japanese

Enterprises

Local Enterprises

（guarantee）

Bond Markets in Asia

（Issuance of bonds）

（Issuance of bonds）

3

Framework after ASEAN+3 Finance Ministers’ Meeting in May 2005

ASEAN+3 Finance and Central Bank Deputies’ Meeting

(AFDM+3)

Focal Group Meeting （Deputy’s Deputy（Director-General）Level）（Chair：Rotating）

ASEAN+3 Finance Ministers’ Meeting

(AFMM+3)

○ Technical Assistance Coordination Team

（Chair：Indonesia、Vice-chairmen：Malaysia, Philippines)

○Ad-Hoc Support Team for the Focal Group

（Chair：Rotating, same as Focal Group）

① Creating New Securitized Debt Instruments

（Chair：Thailand）

② Credit Guarantee and Investment Mechanisms

（Co-chairs：Korea and China）

③ Foreign Exchange Transactions and Settlement Issues

（Chair：Malaysia）

④ Rating Systems

（Co-chairs：Singapore, Japan）

ASEAN+3:Association of Southeast

Asian Nations, China, Japan,

and the Republic of Korea

4

High growth of local currency bond markets in Asia

(Note) All figures are the sum of amount outstanding of government bonds and corporate bonds. Percent of GDP in parenthesis.

* Vietnam: as of December 2005.

(Source) Asian Development Bank “Asian Bonds Online”

（in USD Billions）

1997 2002 2006 1997→2006 2002→2006

China (Excluding Hong Kong）

Indonesia

Korea

Malaysia

Philippines

Singapore

Thailand

Vietnam

83.6

4.6

153.2

57.0

16.8

23.8

10.5

-

342.3

58.1

538.2

84.4

27.6

56.4

48.3

-

1,184.9

87.6

1,010.4

146.9

44.9

86.6

111.5

4.9

Subtotal 349.5 1,155.3 2,677.7 7.7-fold 2.3-fold

Japan

Hong Kong

4,202.6

43.4

6,416.8

58.1

8,487.8

66.1

Total 4,595.5 7,630.2 11,231.6 2.4-fold 1.5-fold

5

The Joint Ministerial Statement

of the 10th ASEAN+3 Finance Ministers’ Meeting

5 May 2007, Kyoto, Japan

=Excerpt=

On the Asian Bond Markets Initiative, we encouraged collective efforts of

ABMI Working Groups in prioritising the work plans and setting clear

deliverables to move forward. We welcomed the diversification of issuers

and types of local currency denominated bonds, and endorsed undertaking

of the following new studies: Exploring New Debt Instruments for

Infrastructure Financing, Promotion of Securitisation of Loan Credits

and Receivables, and Promotion of Asian Medium Term Note (MTN)

Programme. We also recognised noticeable progress of studies on

Regional credit guarantee and investment mechanism, settlement system,

credit rating harmonisation as well as technical assistance coordination.

Furthermore, we were also pleased to see the strengthened public and

private sector cooperation under the ABMI.

6

Exploring New Debt Instruments for Infrastructure Financing

• Bonds issued for infrastructure investments with source of repayments

stemming from the proceeds of the projects (Infrastructure Bonds).

• Investment decisions do not depend on credit ratings of issuers, but on

the profitabilities of the projects.

• It is expected that the study under the ABMI will suggest new types of

debt instruments and associated infrastructure project.

InvestorsUsers

Infrastructure Project

Insurance company

Usage fees

Benefit

Payment(interest and principal)

Guarantee for defaultSource :“Research on the utilization of Revenue Bond” Policy Research Institute for Land Infrastructure and transportation (Revised.)

Insurance premium

7

Promotion of Securitization of Loan Credits and Receivables

• Further securitization of loan credits and receivables would contribute to enhance the volume of bond markets, as well as to a further development of various types of collateralized debt obligations.

• It is expected that the study under the ABMI will explore the measures to support a further promotion of securitization of these assets. Major impediments, standards and best practices for realization of these instruments will also be identified.

（Securitization of Account Receivables)

Client Originator SPC/SPV Investors

Notes /Bonds

proceedsproceeds

Transfer of A/R

Goods/Services

Account Receivables

Source： ”East Asian Finance” (World Bank), METI,Japan

8

Promotion of Asian Medium Term Note (MTN) Programme

Respective domestic clearing documents will be documented

under local laws

MTN Programme is the framework which enables companies to issue bonds/notes with various maturity and rates under certain simple procedures and is a major source of funding in the US and European market.

It is expected that the study under the ABMI will find the way for the development and expansion of MTN program in the region utilizing the modality of the ADB’s Asian Currency Note Programme launched last year.

Source：ADB

Issuer

Dealer(as primary subscriber)

Programme Offering Circular/Documents

(English Law)

Local currencybonds

Local currencyproceeds

Home localcurrency bonds

Home localcurrency

Investors(Singapore・Hong Kong・

Malaysia・Thailand)

（ADB’s Asian Currency Note Programme)