ECONOMISTS are calling this the age of Asian bonds.
The East Asian bond market is poised to grow rapidly in the next 10 years and will mostly likely cross the trillion-dollar mark by 2004, according to a major study released today by the World Bank.
At the end of 1989, the total face value of all outstanding East Asian bonds stood at about $167 billion; by the end of 1994, this market had more than doubled to about $338 billion, according to the report titled "The Emerging Asian Bond Market."
In comparison, at the end of 1993, the outstanding dollar volume of 21 major industrial country bond markets stood at about $17 trillion, the report states.
East Asia is a major economic powerhouse, with a population of 1.6 billion and a combined gross domestic product of $1.3 trillion in 1993. Financing the region's rapid growth over the next decade will require mobilizing massive resources for corporate expansion, dominated by capital-intensive manufacturing, upgrading existing infrastructure stock, expanding services, and building houses, the report states.
Unlike industrial country bond markets, which are dominated by government-issued securities, East Asian bond markets (except in China and the Philippines) are expected to be dominated by the corporate and state-owned enterprise sectors. In 1994, East Asian governments were the main issuers of bonds and accounted for 45 percent of all outstanding bonds. But this profile, the report says, is likely to change dramatically in the coming decade. The government-bond sector is expected to dip to 33 percent by 1999 and 23 percent by 2004.
Corporate securities will be the fastest-growing segment of the bond market, the report says. Bonds issued by this sector are projected to grow from $77 billion in 1994 to more than $500 billion by 2004, with most of the issuers coming from Malaysia, South Korea, and Thailand.
Sprint deal in hands of policymakers
AFTER more than a year of negotiation, France Telecom and Deutsche Telekom have agreed to buy 20 percent of US long-distance carrier Sprint Corporation. Now, it's up to the politicians. And that hurdle isn't so simple.
"This is a high-level political global trade issue," says Alan Pearce, president of Information Age Economics Inc., a research and consulting firm in Washington. "And that's going to be handled by the policymakers."
Lawmakers on both sides of the Atlantic will take a close look at the deal, valued at up to $4.2 billion. The Europeans want to see how the agreement will affect Europe's two largest telephone companies. The Americans are worried about the trade implications.
The Americans pose the bigger threat. If Europeans can come in and buy long-distances carriers in the United States, US policy makers argue, then Europe ought to open its telecommunications industry too. The European Union plans to do this in 1998. But will it liberalize fast enough and far enough to satisfy the Americans? Will the French balk at privatizing their telephone monopoly? "If [liberalization] doesn't come, this deal is not going through," Mr. Pearce says.
The deal itself is complex because it hinges on Sprint's future stock performance and its decision whether to keep its cellular telephone business. If all works out as planned, France Telecom and Deutsche Telekom would spend between $3.3 billion to $4.2 billion for 86 million shares of Sprint, a premium of 25 to 35 percent. But Sprint could delay these purchases up to five years if its stock does not perform well, leaving the Europeans with only a $1.5 billion investment, says William Deatherage, telecommunications analyst for investment firm S.G. Warburg & Co.
Delay may not hurt the three companies all that much, he adds. The markets targeted by their joint venture, called Phoenix, are still developing slowly.
Like the rival global alliances led by AT&T and MCI-British Telecommunications, Phoenix would serve as a kind of one-stop shopping for corporations with offices around the world. Unlike the other alliances, Phoenix also would offer a global calling card for consumers. "The market potential is considerable," says Sprint spokesman Vince Hovaneck. But it will be up to European regulators to decide whether that kind of service will be allowed.
- Laurent Belsie, Pittsburgh