Only months after IFR Asia’s first issue in March 1997, Thailand had given up on its currency and the Asian financial crisis was in full flow. IFR Asia was left asking the same questions as many of its readers: what do we do now?
Asia’s economies had gone through a dramatic transformation in the post-World War II era and they were still booming in the 1990s. The Asian Tiger was roaring. The region’s export-driven economies were hungry for cash and investors were falling over themselves to feed that appetite. Huge amounts of foreign direct investment were being sucked into the local economies and reporters for IFR’s global magazine, launched in 1974, were there to cover the big-ticket, cross-border, hard-currency flows.
Everyone in Asia was doing well, and everyone wanted to do better.
Capital markets activity was not just an international affair though, as domestic channels opened up to facilitate the flow of foreign funds into the hands of the local entrepreneurs – and speculators.
“The Asian tiger was a domestic story,” remembers Chris McAllum, IFR bureau chief in Tokyo in the 1990s and now an adviser to Credit Benchmark in Japan. “It was obvious to editorial (and to the business) that there was a lot of content out there to record and a new subscriber base to which to sell. The business needed more product in order to keep growing.”
The IFR team decided to create a sister publication to reach a new audience, capture the deal data and create brand awareness for parent Thomson Financial in these frontier markets. IFR Asia was born. The decision wasn’t universally welcomed internally, with fears raised over cannibalisation of content and existing revenue: IFR Asia was to be sold at an 80% discount to the established global magazine, known internally as “The Yellow”, and would cover some of the same deals written by the same people.
Nevertheless, the content set was finally agreed on: international and domestic Asia and Australia across loans, bonds and equity, organised by country rather than asset class to reflect the internal structure of the international banks and the domestic focus of the locals.
For the international players, liquidity was most readily found at the short end of the markets, and trading desks had sprung up across the region to cover FX, money markets, government bonds, state-owned enterprises and, later, credit on a country-by-country basis.
Domestic banks and leasing companies, meanwhile, were concerned with their own markets, acting as long-term lenders to local companies and real estate developers, but they studied the dollar markets closely as a way of financing their operations.
One-way traffic
Regional currency markets were mostly pegged, or partially pegged, to a basket of currencies (largely the US dollar, Deutsche mark and Japanese yen, as well as currencies that reflected trade flows), and easy money was flowing into local markets offering higher rates of interest.
“We kept talking to bankers and asking what they were doing. The answer was pretty much the same all over. They were trying to recover their money – they just weren’t sure how.”
“Everyone was doing the same trade: borrowing cheap money in dollars and lending short-term in the local currency,” said Luc Mongeon, part of the original team at IFR Asia and now Asia managing editor at Debtwire.
Mongeon had earlier been covering currency swaps and credit at the now-defunct Knight-Ridder newswire. “It was seen as a safe trade due to the currency pegs and the disparity between interest rates providing a cushion to cover the risk of depreciation.”
The foundations of the Asian Tiger economy were about to be tested, as corporates and investors gorged on overseas financing channels in the chase for growth. It proved to be a flawed aspiration, especially since Asian corporates had borrowed in hard currency and had not thought to hedge the foreign exchange risk.
“I remember discussing with Chris (McAllum) that everyone was doing the same trade and that if anything went wrong they would all be long the wrong way,” said Mongeon.
Thailand on the rack
The realisation that Thailand’s real estate and equity prices were unsustainable led to an attack on the Thai baht peg that drained the country’s foreign currency reserves and led to the central bank’s capitulation in the foreign exchange markets in July 1997.
The baht was devalued and floated and the currency contagion spread through the region. It highlighted the fragility of the continent’s financial system. Paul Krugman’s warning in 1994 that the Asian economic miracle was a myth was borne out as the bubbles began to pop.
The defaults started to appear, beginning with Somprasong Land in Thailand, but quickly spread to other top-tier corporates nationally and around the region as currency devaluations pushed borrowers into breaching covenants, weaker companies into missing payments and more than a few into bankruptcy.
More importantly for IFR, it also meant that selling subscriptions and advertising was going to be much tougher. Just as with the head offices of banks in the US and Europe, the lack of sales caused consternation at Thomson HQ in Connecticut.
“Outside of Asia, nobody seemed to know what was going on,” said McAllum. “IFR Asia revenues had been growing rapidly and then it all stopped. I started to get asked ‘What’s wrong with the product?’”
It called into question the future of the magazine and it took a country-by-country explanation of the issues to clarify that the drop in sales was not due to a defective product, but the result of a systemic problem.
“It went right up to the [Thomson] family and became a question of ‘Do we believe in Asia for the long-term?’” said McAllum. “They decided against closing us down. It then became the responsibility of editorial to adjust the content set to reflect the new paradigm. That’s when IFR Asia effectively turned into a refinancing/restructuring magazine.”
“We kept talking to bankers and asking what they were doing,” said Mongeon. “The answer was pretty much the same all over. They were trying to recover their money – they just weren’t sure how.”
Black hole
Everyone was in the same financial black hole: bankruptcy laws had not been tested, there were very few case studies and politicians were faced with austerity and rioting on the streets. Every development needed to be broadcast and discussed – and there was plenty to report.
Asia’s weak domestic banking system had to cope with increasingly expensive cross-border currency obligations and soaring levels of non-performing loans, while foreign investors had to navigate legal systems effectively stacked in favour of domestic borrowers and local lenders.
It all led to the intervention of the International Monetary Fund, which provided financial assistance to Thailand, Indonesia and South Korea. Later came the infamous US$14bn corporate default of Indonesia’s Asia Pulp & Paper in 2001 and years of bank mergers, austerity and capital-market reforms.
IFR Asia followed the region through its crisis and adjusted its content to reflect the needs of its readers. It provided information worth paying for: rates didn’t drop and subscriptions continued to rise.
“The wonderful thing about that period is that we continued to talk to our contacts while creating really good relationships with restructuring advisers and regulators. The regulators had to change as well as the markets and the magazine,” said McAllum.
“We were all at sea together.”
For other articles in IFR Asia’s 20th anniversary special report please click here. To read the digital version of this report please click here .
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