RPT-New Asian bond volumes show signs of life in Q2

(Repeats story sent late on Wednesday with no changes to text)

By Rafael Nam

HONG KONG, June 25 (Reuters) - Asian bond sales showed signs of life in the second quarter as fears of a credit crisis receded, marking a recovery that will continue but that will be tempered by the threat of inflation and slowing economic growth.

Issuance in G3 currencies -- dollars, euros and yen -- has reached $9.9 billion so far in the second quarter of the year, up from a slow $6.5 billion in the first three months of the year, according to the latest Thomson Reuters data. For the first half so far, the total is $16.5 billion, down 54 percent.

Among the big deals this quarter, Indonesia sold $2.2 billion in a three-tranche issue, while the Export-Import Bank of Korea (KEXIM) sold 750 million euros in five-year bonds and Singapore-listed Noble Group (NOBG.SI) placed $500 million in five-year debt.

Still, the volumes from Asia excluding Japan and Australia represent a fraction of the record $22.4 billion in the second quarter of 2007 that had been fuelled by cheap credit.

Investors remain selective, especially for lower-rated credit, as they deal with the triple threat of inflation, a slowing global economy, and further financial sector turmoil.

That was a lesson learned by Indonesia's Truba Alam (TRUB.JK) and Trade and Development Bank of Mongolia, with both high-yield issuers shelving deals in the second quarter.

"Growth is holding up better than people expected but the drag from poor earnings at banks will stay for a while, and inflation is definitely the new thing," said Joel Kim, a fund manager at ING Investment Management in Hong Kong. "You are also going to have to look at how margins are going to be squeezed."

There are exceptions. Volumes of Samurai bonds hit $14.3 billion in the first half of the year, a record for that period, as foreign issuers flocked to Japan to sell debt to take advantage of the country's near zero interest rates.

HSBC (HSBA.L) tops league tables for G3 issuance from Asia thus far this year, ahead of Deutsche Bank (DBKGn.DE), while Standard Chartered (STAN.L) is the leading issuer of local currency debt, Thomson Reuters data shows.

SLOW AND STEADY

As central banks from Hanoi to Mumbai raise interest rates to combat surging energy and food costs, economic growth could slow, hitting profit margins. Higher rates could especially hit volumes of local currency bonds by making it more costly to issue debt.

Sales of new Asian currency debt have reached only $7.9 billion so far in June, the lowest monthly volumes since February 2007, according to the Thomson Reuters. Volumes for the first half reached $69.4 billion, down 6.9 percent from last year.

Meanwhile, the U.S. Federal Reserve is expected to raise U.S. interest rates later this year, raising the spreads at which companies may have to sell new bonds abroad.

The financial crisis is also still far from over, as shown by continued writedowns among U.S. lenders.