International Financing Review February 29 2020 5GFL recycles IPO pitch 08 Covenants a governance issue 10 GS prepares elevator pitch 12
For daily news stories
@ visit http://www.ifre.com“Both investment-grade and
high-yield issuers are ‘playing it
by ear’ and watching markets,”
said a second syndicate banker.
“For opportunistic issuers it is
logical to wait for some stability
before printing.”
Average yields in the European
junk bond market have jumped
to 3.4% from 2.7% in less than a
week, according to iBoxx data.
“The effects of the
coronavirus on the market are
AMPLIlEDûDUEûTOûTHEûFACTûTHATû
companies are already highly-
levered,” said Marina Cohen,
head of European high-yield at
Amundi Asset Management.KICKING THEMSELVES
French shipping company CMA CGM
HASûSEENûITSûNEAR
TERMûRElNANCINGû
chances vanish after its bonds sank.
CMA has two big maturities
coming up: a €725m 7.75% January
2021 and a €650m 6.5% July 2022.The company had met
investors in January to discuss
RElNANCINGûITSûDEBT ûWHENûTHEû
bonds were at 99.5 and 96,
respectively.
But the bonds tumbled after
the company sent out two
advisories on coronavirus and
reduced its links to China.
By Friday the 2021s had slumped
to 82, according to Tradeweb data,
with the 2022s at 73.
“CMA requires a really strong
market and has very near-term
maturities and is extraordinarily
exposed to coronavirus,” said
one investor.
“It has a maturity due in less
than a year from now and is
trading well below par. It’s a
DIFlCULTûSITUATION vûHEûSAID
Bonds further out its curve
are also struggling. The 5.25%
January 2025s were bid at 63 for
a yield of 17% on Thursday. They
were at 87 and 9% in January.“Some borrowers will be
kicking themselves that they
didn’t move faster,” said a
second investor.
“A month and a half ago they
had perfect conditions. Now,
they’ve got no chance.”OTHER SECTORS
Investors are picking their spots
in high-yield, pointing out that
recovery rates will differ.
For leisure-related industries like
hotels, casinos and restaurants, the
coronavirus impact could mean
permanent losses, said Vivek
Bommi, senior portfolio manager
at Neuberger Berman.
But for sectors like autos,
there may be a snap-back, and
some of those credits may have
been oversold, said Bommi.
“In some of the higher-quality
auto names, the baby has been
thrown out with the bath water in
cases where you have an
extraordinarily strong balance sheet
and no material maturities,” he said.
“Our overall view is that
global growth is going to be
lower, but we will probably get
a rebound in the second half,
when the pent-up demand isreleased.” (^)
trading day, before widening to
4.1% on Friday after US markets
took a further dive.
Hysan’s deal followed another
subordinated perp on February
20 from Indian agrochemicals
company UPL. CHINA MINMETALS
also priced a US$1bn senior
perp on February 25.
“There is one thing that
works in the market – higher
yields. Investors like yield and if
a deal has a solid underlying,
they are more inclined to go
down the capital structure,” said
a banker on the UPL issue.
PANDEMIC FEARS
The dramatic increase in
coronavirus cases beyond China,
in countries such as South Korea,
Italy and Iran, kept G3 currency
deals outside of Asia on mute.
Only two deals, from ING GROEP
and PACCAR, were priced from
Monday through to Wednesday,
with zero corporate issuance in
the US market for at least the
lRSTûFOURûDAYSûOFûTHEûWEEK
Stocks, oil and US Treasury
yields plunged as the worsening
health crisis forced investors to
rethink growth expectations.
“Investors, in particular
global investors, initially
priced-in virus-related
disruption to be relatively short-
lived, followed by a V-shaped
recovery,” said Lukaszewski.
“Over the past few days we have
seen global investors reassess
their sanguine views.”
Being bullish under current
circumstances requires a high
level of conviction, said Neeraj
Seth, head of Asian credit at
BlackRock. “We are watching
out for any potential
disruption in the supply
chain,” he said.
Fund managers remain
keen on Asian credit, but the
divergence from the US new
issue market has put relative
valuations under scrutiny.
“Many of the perpetuals that
we’ve seen in the last couple of
weeks came in at rather
expensive levels,” said Stephen
Chang, Asia portfolio manager
at Pimco. “These instruments
have seen good participation
from the private bank
community and leverage is
offered that might have
enhanced demand.”
The risk-off mood did spread
to Asia on Friday, with most
new issues off at least half a
point and high-yield generally
one to two points lower. The
iTraxx Asia investment-grade
index widened by 11bp to
67.5bp, its highest since
October.
LOCAL LIQUIDITY
Bankers put the strength of the
Asian market down to the depth
of local liquidity, noting that last
week’s new high-yield issues
were not overly reliant on any
single buyer.
ROAD KING INFRASTRUCTURE sold
53MûOFûlVE
YEARûNON
CALLû
three bonds at par to yield 5.9%,
while GUANGZHOU R&F PROPERTIES
raised US$400m from a four-year
non-call two senior bond issue at
par to yield 8.625%. Both were
priced inside initial guidance.
Smaller high-yield offerings
last week also included
US$275m of 2.5-year bonds
from HONG YANG GROUP that
yielded more than 10%.
“That kind of trade will
always get done. It’s China
buying China, engaging
friends and families,” said the
banker on the UPL deal. “I’m
not trying to be complacent,
but there are strong
underlying technicals and
we’ve still got some deals lined
up for next week.”
Although mindful that
default rates may increase and
THATûTHEûFUNDINGûPROlLESûOFû
SPECIlCûCOMPANIESûNEEDûTOûBEû
watched closely, Chang at
Pimco pointed out that Asian
credit remains appealing
compared with other markets.
“Asia credit as a whole still
offers an attractive pick-up in
spreads versus US or global
credits, even though it was even
more attractive before the US
credit sell-off this week,” he
said.
On the Hysan deal, wholly
owned subsidiary Elect Global
Investments is the issuer and
Hysan Development is the
guarantor.
Credit Agricole CIB, HSBC, JP
Morgan, Standard Chartered Bank
and UBS were joint global
coordinators as well as joint
bookrunners and lead
managers.
Source: Refinitiv
200
250
300
350
400
2019 2020
EUROPEAN BOND SPREADS GAP OUT
ITRAXX EUROPE CROSSOVER 5Y INDEX
4 IFR Top news 2322 .p 4 - 14 .indd 5 28 / 02 / 2020 19 : 41 : 46