News
US tax reform lifts Chinese bonds
Bonds PRC sovereign notes offered inside Treasuries on US deficit fearsBY DANIEL STANTONChina achieved a rare feat
last week as one of its dollar-
denominated sovereign
bonds was quoted inside US
Treasuries, thanks mainly
to a rise in US rates after
December’s tax reform
legislation.
The sovereign’s 2.125%
November 2022 bond, priced in
October, was briefly offered on
Wednesday at 2bp below the
US five-year benchmark, before
returning to positive territory.
The China five-year was also
quoted at a negative Z spread
throughout the week.
On the bid side, the China
2022 note was last quoted 4bp
wide of US Treasuries, having
tightened from a spread at
issue of 15bp.
China’s 2027 has also
tightened against Treasuries
since the start of the year, to
Z plus 18bp from 34bp at the
end of 2017, and a Treasuryspread of 14bp from 32bp. The
PRC sold US$2bn of overseas
bonds in October, split equally
between 2022s and 2027s, in
its first US dollar offering since
2004.“China wanted to issue
sovereign bonds to make a
point, and they have done
it successfully,” said Leo Hu,
senior portfolio manager of
emerging markets debt at NNInvestment Partners.
The three major credit rating
agencies see China as a A1/A+/
A+ credit, though it pointedly
did not seek a rating for last
year’s issue after downgradesCMB leads Aussie LBO 06 Bailout pleases LGFV investors 06 SoftBank mulls telco IPO 08
Issuers strike while HY is hot
Bonds Concord, SSMS succeed at second attempt as yield chase continuesBY FRANCES YOONHigher yields and hot market
conditions allowed low-rated
Asian issuers to revive US
dollar bond offerings this past
week, underlining the strength
of demand for new credits at
attractive valuations.
China’s CONCORD NEW
ENERGY and Indonesia’s SAWIT
SUMBERMAS SARANA (SSMS) both
completed new issues they
had shelved two months
ago, but their higher yields
reflected investors’ new pricing
expectations.
Wind and solar power
producer Concord completed a
US$200m three-year Green bondon its second attempt, pricing at
7.9%. It had marketed the note
in November at 7.125% area.
Indonesian palm oil producer
SSMS on Tuesday managed
to price a US$300m five-year
non-call three at a yield of 8%,
in from guidance of 8.125%
area. Last year, it had started
at initial guidance of 7.25%
area for the same tenor and
narrowed to 7.00% before
pulling the issue.
The strong response helped
Indonesian palm oil and sugar
producer TUNAS BARU LAMPUNG
price its own US dollar maiden
a whopping 100bp inside SSMS
the following day, raising
US$200m from a five-year non-call three note at 7%. Bankers
away from the issue said the
differential seemed wide,
despite ratings of Ba3/BB–
(Moody’s/Fitch) for Tunas and
B1/B+ (Moody’s/Fitch) for SSMS.
Tunas, too, had tried to
issue last year, hiring banks
in July for a proposed bond in
Singapore dollars, but it did not
come to fruition.
All three notes rose in
secondary trade, with investors
keen to take advantage of
higher yields following a sell-off
in the sector late last year.
SSMS’s new note jumped two
points to yield 7.1%, close to the
7.0% it was targeting on its first
attempt. The bond from Tunasjumped more than a point,
even after pricing 50bp inside
initial guidance.
TATA STEEL added to the
momentum on Thursday with
India’s first high-yield bond of
the year, raising US$1.3bn with
a lighter covenant package than
in previous offerings. ( See India
Debt capital markets .)
”Investors continue to seek
ways to enhance the yields
of their broader portfolios
given the relatively supportive
fundamentals of the asset
class, where defaults continue
to descend from their more
recent peaks witnessed in late
2016, while recoveries remain
elevated, consequently pointing
to minimal default losses,”
said Andrew Jessop, managing
director and high-yield portfolio
manager at Pimco.
“This was accentuated by