4 International Financing Review February 29 2020TOP NEWS
Barclays trio acquitted 06 US bond market blank 07 Hong Kong’s virtual IPOs 08
High-yield buyers run from ‘virus risk’
Bonds Sentiment flips in junk bond market, as companies rue not refinancing earlierBY ELEANOR DUNCANCompanies most exposed to
the coronavirus outbreak may
see themselves locked out of
the high-yield market as
bankers start to dial down
underwriting risk in affected
sectors and investors cut
exposure to autos, shipping
and leisure companies.
After a record start to the year
for European junk bonds with
the market seemingly open to
all-comers, issuers and investors
lNALLYûREACTEDûTOûCORONAVIRUSû
risk.
The market got a belated
wake-up call last Monday when
world stock markets matched their
worst day in almost four years aftera jump in coronavirus infections in
Italy, South Korea and Iran.
“We’re starting to get more
questions in credit committees,
and certain things look like
obvious passes,” said one
LEVERAGEDûlNANCEûBANKER
“You have to be selective about
what you underwrite, because at
some point, this will feed
through to earnings,” he said.
Sectors including shipping,
autos, airlines and luxury goods
are already being affected.
In mid-February Jaguar Land
Rover cancelled a US dollar debt
raise after chief executive Ralf
Speth said the company had to
mYûPARTSûINûSUITCASESûFROMû#HINAû
to the UK to maintain
production.“The impact on European GDP
could be much bigger than the
near-term impact to the high-
yield market,” said Azhar
Hussain, head of global credit at
Royal London Asset
Management.
“If the effects feed through,
the economic data could look
HORRIlCû4HATûSCARESûMEûMOREû
than anything else, because the
market is pretty late-cycle
anyway.”HOLDING PATTERN
Sentiment has turned on
a dime. After one of the
busiest starts to the year in
European high-yield, just
one bond was being marketed
last week: a €500m debutfrom marine survey company
FUGRO – which was then
pulled on Friday as sentiment
tanked.
The company said that it
would not go ahead with the
senior secured offering because
of “adverse market conditions”.
The deal was already
considered risky, and was
expected to come with at least a
six handle, according to three
investors and two bankers.
Some investors were
expecting the decision. “Fugro
probably picked the worst week
to come to market,” said one of
the investors.
European high-yield issuance
is now in a holding pattern, said
several syndicate bankers.Asian credit withstands panic
Bonds High-yield issues and Hysan hybrid draw support despite global sell-offBY JIHYE HWANGAsia’s bond markets remained
open for corporate hybrids and
high-yield issuers last week
despite a vicious sell-off in
worldwide risk assets.
As the global spread of the
new coronavirus slammed
stocks and froze the US new
issue market, 15 Asian issuers
priced US dollar bonds last
week – including 10 without
an investment-grade rating.
A US$850m hybrid from
HYSAN DEVELOPMENT, a
commercial landlord in
recession-stricken Hong Kong,
highlighted the resilience of
Asian risk appetite last
Tuesday, after the worst day for
US stocks in two years.
Three high-yield offerings
from the Chinese property
sector underlined that point on
Thursday, as the Dow Jones
Industrial Average plunged by
a further 4.4%.Paul Lukaszewski, head of
corporate debt for Asia and
Australia at Aberdeen Standard
Investments, said instruments
with higher credit spreads
would remain attractive to
investors seeking alpha in a low-
rate world.
“This is what should make the
Asian credit markets
increasingly appealing to
investors looking to enhance
their portfolios without
necessarily moving down in
credit quality or extending
duration,” he said.
Hysan found no shortage of
interest in a subordinated
perpetual non-call 5.5 that was
priced at par to yield 4.1%, inside
initial guidance of 4.4% area,
after books closed more than 3.
times subscribed.
Hysan is heavily exposed to a
drop in overseas Chinese
tourism as one of the largest
commercial landlords in Hong
Kong’s Causeway Bay shoppingdistrict, where retailers have
already been hit by months of
anti-government protests.
Rating agencies gave the
structure 50% equity treatment.
4HEûCOUPONûRESETSûEVERYûlVEû
years from year 5.5 onwards,
with a step-up of 25bp in year10.5 and an additional 75bp in
year 25.5.
Investors, however, focused
on the reputation of the
founding Lee family and strong
expected rating of Baa2/BBB
(Moody’s/Fitch).
“It has a higher-beta structure
but it’s still an investment-grade
note coming from a blue-chip
name with a stable history of
BEINGûlNANCIALLYûPRUDENT ûWHICHû
offered strong comfort to
investors despite the overall
bloodbath in markets,” said a
banker on the deal.
Final orders exceeded
US$3.2bn from 148 accounts,
with 97% of the notes going to
Asian buyers.
Asset managers and fund
managers took 60%, private
BANKSû ûINSURANCEûlRMSûANDû
corporations 10%, and banks and
lNANCIALûINSTITUTIONSû
The bonds were trading at
3.97% in secondary markets
Source: Refinitiv DURINGûMORNINGûHOURSûOFûITSûlRSTû2,3,3,3,3,3,Jan Feb
2020STOCKS TUMBLE AS VIRUS SPREADS
S&P 500, CLOSING LEVEL4 IFR Top news 2322 .p 4 - 14 .indd 4 28 / 02 / 2020 19 : 41 : 46