One issue is that, while local currency markets can be a useful source of funding for domestic borrowers in their own currency, it’s still a stretch to see them as vital for cross-border borrowers. “The reality is that any borrower raising funds in one regional Asian market to fund operations in another has to be extremely focused on the swap: ultimately, they need the proceeds in a currency that they can use,” says Edwards. And the problem recently has been that the swap lines have gone. So, while landmark cross-border deals have taken place – Industrial Bank of Korea borrowing in Malaysian ringgit, for example – they’ve tended to wipe out the available swap capacity.

Additionally, some markets don’t help themselves with regulation. In Thailand, for example, “you need to apply for approval with Thai language documents in additional to English,” notes Terence Chia, a Hong Kong-based member of Citi’s Asian debt syndicate. And for real jumbo funding, the dollar is still the only real option for many borrowers, while the diversification it brings in the investor base will always be vital. Available tenors are typically shorter in local than in G3 currencies too, with the exception of the Hong Kong and Singapore dollar markets.

One market that is looking increasingly interesting is the Indian rupee. Oil and National Gas Corporation (ONGC), one of India’s landmark borrowers, raised Rp55.4 billion (US$1.13 billion) in a one-year commercial paper raising in January – getting towards the sort of sums that have traditionally been seen as the preserve of the dollar markets and other developed-world currencies. “It was a very significant transaction through its sheer size,” says Chia at Citi, bookrunner on the deal. “India is a very deep and liquid market and a lot of Indian companies are successfully raising funds in the domestic markets, whereas if they went to the international markets they would have to pay a premium.” As Institutional Investor was going to press, a bigger deal still was underway, for India Infrastructure Finance Corp, which was aiming to raise the equivalent of US$2.2 billion in a government guaranteed, tax free, five year rupee bond.

And this is just the start: India’s infrastructure needs are such that the IIFC will hope to raise close to $8.5 billion equivalent in 2009. While that sounds unfathomable in any market, Prakash Subramanian, regional head of capital markets origination for South Asia at Standard Chartered, thinks it’s attainable. “Liquidity is abundant in the system,” he says. “At a price you would probably get whatever quantum you want as long as it’s a decent credit.” To his mind, the shift in importance in local markets really came when the Reserve Bank of India started reducing rates after the October 15 global stock market crashes. “Triple A corporates borrowing in local currency markets at 12 to 13% started getting funding at 8 to 9%. People started to think: it makes sense to raise money in the local currency market.” In contrast to the rest of the world, most of the rupee issuance took place after, not before, the October crashes.

In smaller markets, progress is clear from a lower base. The Philippine peso is a strong example here. In 2008, despite the obvious macro difficulties, the average issue size increased (from P4.1 billion in 2007 to P4.5 billion in 2008), the volume raised has increased (P54 billion to P86 billion), and tenors have shifted towards the five to 10 year range from shorter term funding previously. Banco de Oro raised P10 billion in May, and the year was filled with successful issues in both senior debt and subordinated funding from banks, with Metrobank succeeding in a P4.5 billion offer just as Lehman was collapsing.

“10 years ago during the Asian financial crisis the Asian currency bond market was non-existent,” says Madhur Mehta, managing director, capital markets at Standard Chartered. “For debt, issuers relied on the dollar bond market, the loan market and bilaterals.” Now local currency markets are an option.

“The challenge is going to be for the local currency markets to move down the credit spectrum, and that will come with time when investors are willing to take in lower grade credits than they do right now,” Mehta says. But although there is more work to be done, there is no question that local markets have provided a credible, and recently vital, source of funds. “Now issuers have a choice.”

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