IFR 08.24.2019

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Top news

Swedbank’s AT1 blowout 06 Banks braced for Brexit 06 WeWork heads for September IPO 08


For US corporates, low rates mean


no dog days in August


„ Bonds Low yields and global demand provide big opportunities for US borrowers

BY WILLIAM HOFFMAN

US corporates must feel like
mangling the lyrics of the Byrds -
“there is a season, churn, churn,
churn” - as demand for bonds
even at the height of summer
spurs supply at a solid pace
despite market volatility and the
SELF
INmICTEDûPOLITICALûCHAOS
Indeed, US investment-grade
bonds have emerged in August
as the one safe haven for yield-
STARVEDûINVESTORS
As equities sold off during a
heated US-China trade war and
recession fears spooked markets
after two and 10-year Treasury
RATESûBRIEmYûINVERTED ûCORPORATEû

credit remained attractive for
both borrowers and investors
ALIKE
In all, high-grade borrowers
HAVEûRAISEDû53BNûSINCEû
trade war-induced volatility
picked up at the start of August,
ACCORDINGûTOû)&2ûDATAû'IVENûTHEû
backdrop, many expected that
volume this month would be
SIGNIlCANTLYûLOWERûCOMPAREDû
with the same period last year,
but the market has been busy
and volume is close to the 2018
lGURE
And Bank of America Merrill
Lynch anticipates supply in the
last four months of the year will
exceed last year’s pace, for an

ANNUALûTOTALûSETûTOûENDûJUSTûû
DOWNûONûTHEûYEAR
Much of that volume has been
OPPORTUNISTICûRElNANCINGSûTOû
LOCKûINûLOWûRATES
“Whenever you see the all-in
corporate bond yields for US
investment grade retest new lows,
it pulls supply forward,” said Scott
Kimball, portfolio manager at
"-/û'LOBALû!SSETû-ANAGEMENT
“If you are thinking of issuing
debt in the next three to six months
it invites issuers to take advantage
OFûTHEûLOWERûCOSTûOFûCAPITALv

PILING IN
Safe-haven buying amid fears of
a global slowdown and booming

foreign appetite have spurred a
rally in US Treasuries after the
Federal Reserve cut rates in July
FORûTHEûlRSTûTIMEûINûAûDECADE
The yield on the 10-year US
4REASURYûFELLûASûLOWûASû ûANDû
THEû
YEARûDROPPEDûBELOWûû
FORûTHEûlRSTûTIMEûEVER
Yet those low yields have not
dissuaded investors from piling
into US corporate debt in large
part because the options
elsewhere are so unattractive
with the universe of negative
yielding debt outside the US
hitting US$16trn and continuing
TOûGROW
That technical bid for US
corporate credit has seen books

Hong Kong unrest puts IPOs in doubt


„ Equities Alibaba waits while others will have to compromise on valuation

BY FIONA LAU

Political unrest has cast doubts
over stock market listings for the
foreseeable future in Hong Kong,
including the secondary listing of
UPûTOû53BNûFROMû#HINESEû
e-commerce giant ALIBABA GROUP
Alibaba has never committed to
AûlRMûTIMETABLEûSINCEûlLINGû
CONlDENTIALLYûINû*UNE ûBUTûEARLIERû
expectations had centred on a
launch soon after it reported its
EARNINGSûONû!UGUSTûû!ûPERSONû
familiar with the situation,
however, said it was unclear when
the deal would happen and ruled
OUTûANYûSUCHûMOVEûTHISûMONTH
“When the deal will come
depends entirely on the
development of the Hong Kong
protests and the US-China trade
DISPUTE vûSAIDûTHEûPERSON
Pro-establishment politician
Michael Tien Puk-sun said last
Tuesday the Chinese government
has set October 1, the 70th

anniversary of the founding of the
People’s Republic of China, as the
deadline to calm the situation in
(ONGû+ONG
Bankers are hoping that the
(ONGû+ONGûGOVERNMENTûWILLûlNDû
a way to end the protests in the
NEXTûFEWûWEEKS
h.OûHIGH
PROlLEû#HINESEû
companies would want to launch a
mega offering in Hong Kong when
the city is in a tense relationship
with the Chinese government,”
said another person with
KNOWLEDGEûOFûTHEûMATTERûh!LIBABAû
is in no rush to raise funds, so it can
WAITûUNTILûTHEûCONDITIONSûAREûRIGHTv
Alibaba’s Hong Kong listing
plan surfaced as the US-China
TRADEûCONmICTûWASûESCALATING û
sparking speculation that the
main aim of the move is to
reduce Alibaba’s dependence on
THEû53ûCAPITALûMARKET
“We have always seen this
[listing in Hong Kong] as a
POLITICALûDECISIONû!LIBABAûCANû

easily raise the same amount of
money from a follow-on in the
US given its huge daily
turnover,” said a banker away
FROMûTHEûDEAL
The 30-day average daily
trading volume of Alibaba was
MûSHARES ûACCORDINGûTOû
2ElNITIVûDATA ûEQUALûTOû
53BNûATû4HURSDAYSû
53ûCLOSINGûPRICE
4HEûSTOCKûHASûRISENûûSOûFARû
this year, outperforming the
ûGAINûFORûTHEû$OWû*ONESû
)NDUSTRIALû!VERAGE
'IVENûTHATû!LIBABASûMAINûMOTIVEû
ISûNOTûlNANCIAL ûSOMEûBANKERSû
worry that Hong Kong could still
LOSEûOUTûTOûANûALTERNATIVEûVENUE
“If Hong Kong’s situation
deteriorates further, there’s a
chance it may not even list in the
CITYû$ONTûFORGETûTHEYûHAVEû
explored a domestic listing before,”
SAIDûTHEûBANKERûAWAYûFROMûTHEûDEAL
Alibaba worked with CICC and
CLSA last year to explore an issue of

Chinese depositary receipts, though
THEûDEALûDIDûNOTûMATERIALISE
CICC and Credit Suisse are
arranging the planned
SECONDARYûLISTINGûINû(ONGû+ONG

LOWER VALUATIONS
While Alibaba waits, other
issuers are still planning to push
their deals ahead if market
CONDITIONSûALLOW
Fosun-backed SHANGHAI HENLIUS
BIOTECH plans to start pre-marketing
this week for a Hong Kong IPO of
ABOUTû53M ûWHICHûWILLûBEûTHEû
lRSTûSIZEABLEûTESTûOFûINVESTORû
APPETITEûAFTERûWEEKSûOFûPROTESTS
h7EûCANûGETûAûSENSEûlRSTûONû
what valuation investors are
willing to pay for the IPO from
PRE
MARKETINGû4HEûCOMPANYû
hasn’t decided when to open
books for the deal as yet,” said a
PERSONûCLOSEûTOûTHEûTRANSACTION
!TûLEASTûlVEûOTHERûCOMPANIESû
are planning to seek listing
approval as early as September
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