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OVERVIEW AND HISTORY
The Dragon bond market is the non-Asian currency public debt market in Asia, outside of Japan. It is defined by its principal investors, who are based in Asia and who are the primary buyers of debt issues launched, priced and syndicated in Asian time zones.
The phenomenal growth rate of capital in Asia, which far exceeds that of North America or Europe, whether measured by GDP growth, savings rates or central bank reserves, has resulted in a burgeoning pool of wealth for which a regional bond market is a natural outlet for investment.
While there has been debate about the validity of the Dragon bond market, with the market's detractors going as far as to deny the existence of such a market, the efforts of a core group of issuers and investment banks to provide Asian fixed-income investors with a steady stream of fixed-income assets has ensured that the market is now a viable provider of capital for major international and Asian regional borrowers.
As at the end of May 1994, there have been 22 Dragon bond transactions, including the tap of an already outstanding issue by GE Capital, totalling approximately US$5.1 billion. The issuers have come from Asia, Europe, North and South America, with investor participation in every major Asian country.
Growth in the market shows signs of continuing in terms of both investor and issuer diversification. In time, the necessity for a strict definition of a Dragon bond will become obsolete as Asian fixed-income investors become more sophisticated and further integrated into the global debt capital markets.
The first Dragon bond issue was launched in October 1991 for the Asian Development Bank (ADB). The seven-year, US$300 million issue was priced with a coupon of 7.5% to provide a yield of 38 basis points over Treasuries. Although the maturity of the issue stretched the parameters for some investors, the issue was a major success for the region.
A year later, ADB launched a second Dragon issue, again for US$300 million, but with a five-year maturity. The shorter maturity proved to be more appealing to a wider group of investors and subsequently performed very well.
Nineteen-ninety-three was a watershed year for the Dragon bond market. Eleven issues, for a total of...