Asia's Role in the Global Securities Market

Asia's Role in the Global Securities Market

Asia: Fastest growth en route to 2050The Economic League Table in 2050Rank Country Size of Economy (Bn Constant 2000, USD) Ranking ChangeYear 2050 Year 2010 from 20101 China* 25,334 3,511 22 United States 22,270 11,548 -13 India 8,165 960 54 Japan 6,429 5,008 -25 Germany 3,714 2,058 -16 United Kingdom 3,576 1,711 -17 Brazil 2,960 921 28 Mexico 2,810 688 59 France 2,750 1,496 -310 Canada 2,287 892 011 Italy 2,194 1,124 -412 Turkey 2,149 385 613 South Korea 2,056 798 -214 Spain 1,954 711 -215 Russia 1,878 412 216 Philippines 1,688 112 2717 Indonesia 1,502 274 418 Australia 1,480 565 -419 Argentina 1,477 428 -220 Egypt 1,165 160 1521 Malaysia 1,160 146 1722 Saudi Arabia 1,128 258 123 Thailand 856 187 6Other Asian Countries in Top 10030 Pakistan 675 111 1431 Bangladesh 673 78 1741 Vietnam 451 59 1142 Singapore 441 165 -1151 Uzbekistan 314 25 2265 Sri Lanka 175 25 75Source: World Bank, HSBC Estimate*China includes Hong Kong & MacauAsian Countries areexpected to be the fastestgrowing economies enroute to 2050, which wouldlead to a major shake-up inworld order

II. Evolution of the Asian Debt Capital Markets

Rising prominence of the Asian debt marketsAsia-ex Japan All Currency Issuance Volume 1995 – 2011USD bn600500• Source of funding largelycharacterized by bank /relationship lending• Scant in terms of variety ofissuers, product type anddepth• Burgeoning bond market• Wider breadth of products• Savvier issuers andinvestors alike• New markets40030020010001995199519961996199719971998199819991999200020002001200120022002200320032004200420052005200620062007200720082008200920092010201020112011G3 CurrenciesSource: Dealogic, RMB includes both onshore CNY and offshore CNHCriteria: Deal Pricing Date - Between 1st January 1997 and 30th June 2012Deal Region - Is one of ASIA or SEASI or INDIARank Eligible (Y/N) - Equals YDeal Type - Not any of ABS or MBS or ST or MMLocal Currency8RMB

Growing importance of Asian private wealthDistribution Statistics of Recent Asian targeted PerpsIssue Date Issuer IssuerCountryStructure Coupon Amount Private banks(%)Key Distribution Statistics02-May-12 Hutchison Whampoa PerpNC5 Hybrid 6.000 1,000 48 5326-Apr-12 Aviva PLC PerpNC5.5 T1 8.250 650 93 7829-Mar-12 RWE 60NC5 Hybrid 7.000 500 60 66Asia(%)15-Mar-12 Swiss Reinsurance PerpNC6.5 8.250 750 80 6023-Feb-12 Banco do Brasil (tap) PerpNC10 9.250 750 56 3722-Feb-12 Sumitomo Mitsui 10yr Bullet LT2 4.850 1,500 38 6815-Feb-12 UBS 10yr Bullet LT2 7.250 2000 72 5909-Feb-12 Braskem (Tap) PerpNC5 Senior 7.735 250 60 4818-Jan-12 Standard Chartered 10yr Bullet LT2 5.700 1,000 54 6212-Jan-12 Banco do Brasil PerpNC10 9.250 1,000 49 2811-Jan-12 Cloverie PerpNC6 8.250 500 85 7709-Jan-12 ICTSI PerpNC5 Hybrid 8.375 150 50 9510

Asian local currency bond markets demonstrating remarkable growthUSD bn60050040030020010000.419950.119960.319971998AsianFinancialCrisis0.519983.7199923.5200041.32001Source: Dealogic, including RMB (onshore and offshore)Criteria: Deal Pricing Date - Between 1st January 1997 and 30th June 2012Deal Region - Is one of ASIA or SEASI or INDIARank Eligible (Y/N) - Equals YDeal Type - Not any of ABS or MBS or ST or MMAsian Local Currency Issuance Volume 1995 – 2012YTD52.2200263.520031180.6200492.7200596.32006123.620072008GlobalFinancialCrisis213.92008362.22009353.62010495.52011 - 12EurozoneCrisis2011237.62012YTD

Providing issuers with a source of funding despite periods of extremevolatility when the international debt capital markets were shutUSD m40,00035,00030,00025,00020,00015,00010,0005,000Asian Local Currency Issuance Volume 2011 – May 2012iTraxx Asia ex. Japan IGbps2502001501000Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr MayAsian LCYG32012Source: Bloomberg, Asian Local Currency excludes RMB (CNY and CNH)12

Development roadmap of ASEAN + 3Phase IPhase IIPhase IIIASEAN LinkASEAN ProductsASEAN Clearing &SettlementQ2, 2012 2012 2013Work in Progress Work in Progress Estimated16

Greater access for foreign issuers into both matured and more regulatedlocal currency bond marketsUSDm15,00010,0005,000Matured Local Currency Bond Markets – E.g. SGD MarketProgressive liberation by MAS including cancelling of restrictionson Singapore-based financial institutions trading with non-financialinstitutions, trading of derivatives etc.40%30%20%10%0USDm10,0008,0006,0004,0002,0000Source: Dealogic2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Foreign Issue Total % of Foreign IssueYTDMore regulated markets – E.g. THB MarketLegislative measures by MoF including notification and furtherpermission for International Financial Institutions, ForeignGovernments and Financial Institutions of Foreign Governments toissue THB in Thailand2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 201217YTDForeign Issue Total % of Foreign Issue0%15%10%5%0%

Cross-border local currency transactions in conventional & structuredformatsHong KongHong Kong Mortgage CorporationAUD500m 5-yr Kangaroo IssueFeb 2012BP Capital Markets plcRMB700m Fixed Rate Notes due2014Sep 2011AUD400m3-year FRNJul 2011America MovilRMB1bn Fixed Rate Notes due 2015Feb 2012(The first SEC registered Dim Sum Bond)Ford Motor CompanyRMB 1bnFixed Rate Notes due 2015Mar 2012AustraliaEmirates NBDRMB250m reopening 4.875% due 2015Mar 2012AUD Covered Bond (pre change of regulation in Oct.11)CIBCAUD646m Covered BondDnB NOR Boligkreditt ASAUD642 Covered BondJul 2011May 2011SingaporeMalayan Banking BhdSGD1bn 3.800% MTN Sub Notesdue 2021Apr 2011LondonLloyds TSB Bank PlcSGD300m 3.500% due 2014Mar 2011HSBCRMB2bn 3-yr Dim Sum BondThe First Dim Sum Bond sold to investorsbeyond China’s bordersApr 2012Dah Sing BankSGD225m 10NC5 yearSubordinated Lower Tier 2 NotesFeb 2011ThailandCheung KongNew tap of SGD230mPerpetual-NC-2016Feb 2011KEXIM4.16% THB6.5bn4.4% THB1bn3/10-year Fixed Rate NotesNov 2011Structured Products18

III. Debt Product Innovation

A. Sukuk

Islamic finance industry development & evolutionSukukFirst corporateSukuk by ShellMDS (USD33mn)(1990)World’s first global Sukuk byGovt. of Malaysia(USD600mn) (2002)First global Sukuk by Govt. ofIndonesia (USD650mn) (2009)Largest global Sukuk by Govt.of Malaysia(USD2bn) (2011)2nd global Sukuk by Govt. ofIndonesia (USD1bn) (2011)Institutions1 st Islamicbank inEgypt(1963)Dubai IslamicBank established(1975)AAOIFI 3)established (1990)IFSB 4) established (2002)Dubai Financial Marketstructured into world’s firstIslamic bourse (2006)IILM 5) Corporation established(2010)RegulationsMalaysia passeslegislation on IF(1983)Banking becomes100% interest-free inIran (1983) and Sudan(1989)IFSB 4) introduces ‘Standards’ onBasel ll compliance (2005)1960s 1970s 1980s 1990s 2000s 2010sOman passes legislation onIslamic Finance (2011)Japan amended the AssetSecuritisation Law (2011)Hong Kong finalizing tax andlegislative amendments forSukuk (2012)Products &Capabilities• Banking• Banking• Project finance• Syndications• Takaful1) Islamic Development Bank2) Organization of the Islamic Conference3) Accounting and Auditing Organisation for Islamic Financial Institutions4) Islamic Financial Services Board5) International Islamic Liquidity Management• Banking• Project finance• Syndications• Takaful• Equity (index)• Leasing21• Banking• Project finance• Syndications• Takaful• Equity (index)• Leasing• Sukuk market• Structured alternative assets• Risk management• Private equityIslamic assets expected toexceed USD 2 trillion by2017

Global sukuk market growthThe global Sukuk market has reached USD 180bn in issuancesVolume by Tenor 2009-2012YTDHistorical Sukuk Issuance Volume Since 200213%8%5%40Malaysia UAE Saudi IndonesiaQatar Bahrain Kuwait Others21%44%3531.133.69%3026.9 27.1< 3 3 - 5 5.- 77 - 10 10 - 20 >20Volume by Currency 2009-2012YTDUSD billion25201512.819.015.36%11%1051. 2003 2004 2005 2006 2007 2008 2009 2010 20112012YTDMYR USD SAR Others Total Sukuk volume issued globally has reached USD 180 bnSource: HSBC, Dealogic 29 April 201222

Creating enabling environments for Islamic FinanceRegulatory support and acceptance across global financial marketsUnited KingdomTurkeyKazakhstanHong KongSouth KoreaJapanSukuk legislation passed in 2007;Treasury considering rollingprogramme of short-term Sukuk billsto act as risk free benchmark ofmarketThe first commercial Turkish Sukukwas issued in 2010 by KuvyetParticipation Bank, leading toconsiderations of a future sovereignSukukRecently passed a Sukuk lawallowing the Sovereign andKazakhstan-based entities to raisefunding through SukukNow finalising legislative amendmentsfor Sukuk; expressed the intention toestablish a wholesale Islamic capitalmarket and tap into the growing GCC-China capital flowThe regulator has signaled intentionto promote IF products; a draftSukuk Law has been submitted tothe National Assembly for review in2011An amendment to the JapaneseAsset Securitisation Law was madewith certain tax reforms; the Sukukplatform is in place starting fromApril 2012GermanyIn 2004, the federal state of Saxony-Anhalt became the first EuropeSukuk issuerThailandSukuk law passed in 2011;Considering to issue sovereignSukuk to tap into GCC liquidityFranceKeen to push for development ofIslamic finance; existing legislationnow allows for Sukuk issuanceMalaysiaTax and legal framework arealready Sukuk-friendly; multiplesovereign Sukuk issuancesEgyptSukuk legislation drafted andscheduled to be drafted into lawbefore year endJordanConsidering legislation forSukuk issuances; looking to issueSukuk in 2012SingaporeBy introducing a new set of laws,MAS has leveled the playing fieldbetween Islamic and conventionalfinance; MAS has issued SGDdenominated Sukuk in 2008NigeriaUndergoing regulatory adjustmentsto introduce IF; a first sovereignSukuk is planned for 2012BahrainCentral Bank makes a short termissuance almost every month; one ofthe largest secondary market forSukukUAEDIFX wants to emerge as the globalSukuk centre; large issuances bysovereign and quasi-sovereigninstitutionsNon-Asian Countries23OmanGovernment approved theestablishment of Islamic Financein 2011PakistanAsian CountriesLarge global sovereign issuance in2005; first local sovereign issuancein 2008; Central Bank hasestablished a dedicated IslamicBanking UnitIndonesiaCarried out extensive tax and legalreforms; carried out first IDRsovereign issuance in August 2008;issued the first sovereign USDSukuk in 2009 and the second onein 2011

B. Inflation-Linked Bond

Inflation: A major concern of AsiaAsia CPI YoY Growth 1996 - 2011(%)Asia CPI YoY (%) Growth765432101996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Source: Bloomberg25

Growing footprint of inflation-linked bonds in Asia PacificThailandHong Kong• July 2011, HKD10bniBond issued• June 2012, the 2nd roundof iBonds launched,maximum HKD10 billion• July 2011, the MOFThailand’s first everinflation-linked bond ofTHB40bn• The first ever inflationlinkedbond in South EastAsia• Reopened subsequently inFebruary and May of 2012,bringing the total size toTHB 70bnIndia• 5-year linkersmatured in 1999Australia• Market reopened in 2009,with the government'sUSD4bn linker syndication• A new line of up toAUD2.5bn 20-year linkerfollowed in 201026New Zealand• USD1bn on issueSouth Korea• Began issuing 10-year linkers again inJune 2010, first timesince Aug 2008. Havecommitted tomonthly tenderprogrammeJapan• The governmentbegan buying backlinkers in 2009/10


CNH internationalisation timeline SEPTEMBER 2011Private sector-led development ofthe CNH market in London DECEMBER 2011City of London initiative on Londonas a centre for CNH businessestablished JANUARY 2012UK Chancellor and Chief Executiveof HKMA co-operation ondevelopment of offshore RMBbusiness APRIL 2012HSBC Bank Plc issues firstEuropean targeted CNH bond issue2004 20072009 – 2010 JANUARY 2004CNH personalbusiness allowed JANUARY 2007CNH Bond issuesallowed JUNE 2009Pilot launch of cross-borderRMB trade settlement scheme JUNE 2010Expansion of cross-border RMBtrade settlement scheme JULY 2010Establishment of the offshoreRMB (CNH 2 ) market in HK AUGUST 2010Onshore RMB inter-bank bondmarket opened to selectedoffshore RMB FinancialInstitutions and central banks SEPTEMBER 2010Offshore banks allowed to openCNH settlement accounts2011 2012 JANUARY 2011Mainland Enterprises can makeoverseas investment in CNH in the formof Overseas Direct Investment MARCH 20118 offshore banks allowed access toonshore bond market AUGUST 2011- China MOF sovereign CNH20bnbond issue in HK- Chinese Vice Premier, Li Keqiang,backs HK as offshore RMB centre- Mainland corporates can issue CNHbonds in Hong Kong OCTOBER 2011Formalization of RMB Foreign Directinvestment (“FDI”) 2012MOF sovereign CNH bondissue in the pipelineSource: HSBC1.CNH is the name used in the market torefer to offshore deliverable RMB28 DECEMBER 2011RMB Qualified Foreign InstitutionalInvestor (“RQFII”) launched

Offshore RMB trade and deposit volume growth in Hong KongOffshore RMB Deposits (2010-2012YTD)700600500RMB Market DepositsRMB Trade Settlement Volume (Monthly)400300CNH Billion2001000Jan-10Feb-10Mar-10Apr-10May-10Jun-10Jul-10Aug-10Sep-10Oct-10Nov-10Dec-10Jan-11Feb-11Mar-11Apr-11May-11Jun-11Jul-11Aug-11Sep-11Oct-11Nov-11Dec-11Jan-12Feb-12Mar-12Apr-1229RMB Trade Settlement figure is for trade settled in Hong KongSource: PBoC, HKMA, CEIC, HSBC

Total issuance in CNH has exceeded CNH250bn with issuers from acrossthe credit spectrumOffshore RMB Issuance (2010-2012YTD)300250200150100500Jan-10Feb-10Mar-10Apr-10May-10Jun-10Jul-10Aug-10Sep-10Oct-10Nov-10Dec-10Jan-11Feb-11Mar-11Apr-11May-11Jun-11Jul-11Aug-11Sep-11Oct-11Nov-11Dec-11Jan-12Feb-12Mar-12Apr-12May-12CNH BillionSource: Dealogic30

City of London initiative on London as a centre for RMB businessRMB Deposit Base in London, Taiwan and Hong Kong as of March 2012VisionLondon to develop as a “western hub” forthe international RMB marketMembers• Bank of China, Barclays, Deutsche Bank,HSBC and Standard Chartered.• HM Treasury, the Bank of England andthe Financial Services Authority areobservers to the initiativeLondonRMB 109bnTaiwan• Provide leadership to the wider financialmarkets on the technical, infrastructureand regulatory issuesRMB 11.5bnRole• Advise HM Treasury on maximisingLondon's capacity to trade, clear andsettle RMB and articulate long term aimsfor the development of the RMB market inLondon.Hong KongRMB 554.3bn• Develop and maintain a private sectordialogue on the offshore RMB marketwith regulators in Hong Kong andmainland China to complement that whichis already maintained by the UK publicsectorSources: HKMA, Taiwan OBU, Practitioner Policy Paper by Bourse Consult, as of March 201231

RMB market potential• After USD and Euro, RMB is expected to replace GBP as the 3rd most popular currency for trade settlement globally (1)• Nearly 8 in 10 businesses in mainland China which have not yet started to use RMB to settle cross-border trade areplanning to use or adopt it conditionally in their future transactions (2)• More than USD 2 trillion or one half of China’s total trade flows with emerging markets expected to besettled in RMB by 2013 to 2015 (3)• Further financial reform to strengthen domestic financial infrastructure (3)• Paving the way for full RMB convertibility (3)2010-2011 2013-2015 2015 onwardsNotes:(1) HSBC Trade Confidence Index - Oct 2011(2) HSBC RMB Cross-Border Trade Settlement Survey 2011(3) HSBC in-house estimates32

D. Hybrid Perpetual Securities

The Asian corporate hybrid perpetual boomCorporate Hybrid Perpetual Issuance 2010-2012YTD5,000124,5004,000103,5003,0008USD million2,5002,0001,50064# of Deals1,000500202010 2011 2012SGDUSD034

MAS raises concerns and issues warnings about perpetual bondsMAS 'worried' by perpetual bond rushConcern that retail investors may take on too much risk“The unprecedented run of perpetual bond sales in Singapore has caught the attention of the regulators”“The Monetary Authority of Singapore is growing concerned about the number of potentially risky bondsthat have ended up in the hands of individual investors. Bankers said MAS officials had voiced theirconcerns over retail holdings of perpetual bonds during at least two informal meetings in recent weeks”MAS reiterates responsibility on perpetuals35IFR AsiaMay 12, 2012“…issuers selling perpetual securities to retail investors had to comply with the Securities and FuturesAct, with proper disclosure of the features and risks of the products, whether this was in a prospectus oran offer information statement for a listed issuer. This has to be made available to investors before theypurchase the perps – a requirement that is already in force for retail plain vanilla bonds and commonstocks...”IFR AsiaMay 19, 2012

IV. Equity Market

Hong Kong remains the leading IPO centre globallyIPO Issuance Volume per YearUSDbn6056.350403031.133.233.630.42010019. 2010 2011 2012YTDHK NYSE LSE Euronext (Amsterdam, Brussels, Lisbon, Paris)1.5Source: Dealogic, excluding Chinese A-shares37

International company listings in Hong KongRecent international company listings in HK30,000Wynn MacauUS$1.9bnL’OccitaneUS$787mValeMGM ChinaUS$1.6bnUS$2.5bn25,000SouthGobiUS$442mIRC LtdUS$241mGlencoreUS$10.0bnCoachHang Seng Index20,000Sateri US$469mSBI HoldingsUS$206mCapitaMallsAsiaAIAUS$20.5bnSamsoniteUS$1.3bnUC RusalSands China US$2.2bnUS$2.5bnKazakhmysSunshine OilsandsUS$579m15,000Sep-09 Jan-10 May -10 Sep-10 Jan-11 May -11 Sep-11 Jan-12 May -12Source: BloombergIPO Spin-off Listing byintroductionSecond listing38 HIGHLY RESTRICTED

Asia-driven business and growth profile are key towards creating“stickiness” for HK sharesL'Occitane US$787m IPOSamsonite US$1.3bn IPOPrada US$2.5bn IPOc.48% in Asiac.33% in Asiac.43% in AsiaRevenue by geographyFrance14%US17%Brazil4%UK5%Other24%Japan24%HK8%Taiwan4%NorthAmerica25%Latin America7%Europe35%Japan3%Asiaex-Japan30%NorthAmerica15%Europe42%Japan11%Asia ex-Japan32%Source: Company dataNote: Based on revenues in the latest financial year prior tolistingSource: Company dataNote: Based on revenues in the latest financial year prior tolistingSource: Company dataNote: Based on revenues in the latest financial year prior tolisting39

V. Conclusion

Conclusion Further internationalisation of the Asian securities market Growth of the Asian bond market to be at least linear to or ahead of GDP growth CNH market will continue to expand, in the same way the Euro market did in the 1980’s Greater financial innovation41

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