Haier’s sovereign debut 08 Aussie ABS record 10 ChemChina refinancing 11
long even as we continue to
see global growth improve,
and will have to increase them
faster.”
Investors are wary of the
implications for emerging
markets from a repeat of the
2013 “taper tantrum”, when
the Fed’s plans to scale back its
monetary stimulus triggered
heavy selling of EM assets. The
Indonesian rupiah and Indian
rupee were among the hardest
hit. “We are most concerned
about a faster-than-expected US
rate rise pushing the US into
recession and ending the global
business cycle,” wrote Morgan
Stanley analysts in the report.
“We would also watch out
for idiosyncratic EM political/
geopolitical risks and a major
slowdown in China.”
Rising US yields could have
a big impact on corporate
funding in Asia, where
investors have snapped up a
record amount of US dollar
issuance this year.
In particular, Asian corporate
perpetuals stand to lose out in
a rethink of rate expectations.
Issuers like CK INFRASTRUCTURE
HOLDINGS sold US$500m of
perpetual non-call fives in
August with a fixed-for-life
coupon, offering investors no
protection from interest rate
rises and no maturity date.
The perps dropped in the
aftermarket because of the
tight yield of only 4.85%, but
have since rebounded. Last
week, they were spotted at
100.97/100.525, according to
Tradeweb.
Hong Kong-listed ROAD KING
INFRASTRUCTURE in June sold its
second fixed-for-life perpetualbonds. Those perps were
trading at 98.5, below the issue
price of par.
Taiwanese life insurers have
also been big buyers of long-
dated US dollar credit, typically
with tenors of 30 years and call
options, through the Formosa
market in recent years.TAKING COVER
Last week’s Fed minutes
showed that US policymakers
were still debating if low
inflation should warrant slowerrate increases, but the fear is
that financial markets may be
caught on the back foot when
global central banks start to
raise rates faster.
This could prompt losses,
particularly as credit valuations
have also been viewed as tight.
Asia’s investment-grade CDS
index is trading near recent
post-Lehman tights.“We believe as global central
banks unwind support for
markets we could see higher
volatility and the potential for
higher rates and wider credit
spreads,” said Mark Kiesel, CIO
for global credit at Pimco.
“We are in the second half of
the US expansion and, as such,
investors should be taking less
risk now in credit, particularly
given current valuations.”
Higher rates could spell
the biggest fallout globally
in European fixed-incomemarkets, Invesco’s Isaac said,
because monetary easing had
kept yields so low. Germany’s
benchmark 10-year bond yields
rose sharply since last month,
and investors are waiting for
signs that the European Central
Bank will taper its bond-buying
stimulus at the next policy
meeting on October 26.
“If you do get a sell-off in
global rates in Europe, it will
go under pressure more than
anywhere else,” said Isaac.
Invesco and Aviva Investors
have been buying options,
while volatility is still cheap,
to guard against fluctuations,
and Pimco has said it has been
reducing risk particularly amid
tight valuations.
Aviva Investors has bought
long-dated options where the
decay per annum is negligible
relative to purchasing three-
month options, which go to
zero very quickly when not
exercised in an environment of
lower volatility.
“Having these positions will
benefit us. It is a risk-reducing
strategy to protect against
crisis-like situations where
bond volatility can stay elevated
for a while,” said James
McAlevey, senior portfolio
manager for fixed income at
Aviva Investors. they had pitched short-dated
CBs for months as a way to get
around the restrictions.
“We have been pitching the
issuers with this idea, but not
everyone likes it because selling
a CB with less than one-year
tenor will mean the issuers will
have to start thinking how to
refinance the deal soon after
it’s closed,” said one of the
bankers.
The issue itself was well
received with a good mix of
outright investors and hedge
funds in the book. The strong
demand allowed the lead to
exercise the upsize option fully.
The CB carries no coupon
or yield, and the conversion
premium is marketed at
15%–20% above the reference
share price, which is last
Wednesday’s close of HK$17.64.
The issue was priced at theinvestor-friendly end for a 15%
premium.
For investors, the issue is not
a valuation play as the short
tenor has pushed them to look
beyond credit.“One-year credit doesn’t
really mean anything. It’s
about whether you believe this
company is going to be deadnext year or not,” said the person
familiar with the situation.
For Zhongsheng, a zero-
coupon and zero-yield CB
allows it to sell equity at a
premium compared to sellingshares at a discount through
placements.
Zhongsheng said the issue
allowed it to obtain immediate
funding for further business
expansion. It will use the
proceeds for general corporate
purposes, including, but not
limited to, working capital and
potential repayment of offshore
debt.
Zhongsheng has dealerships
for Mercedes-Benz, Lexus, Audi,
Porsche and Land Rover, among
others.
Credit spread for the CB
was assumed at 220bp–225bp,
with volatility at 25–26 and
bond floor at 96–97. The CB
traded up to around 102 in the
secondary market. For daily news stories
visit http://www.ifrasia.com“It’s an opportunistic trade after a strong
share price run-up and the company is happy
to get some money at good terms. It’s about
thinking out of the box. The deal complies
with the regulations and is not challenging the
authorities.”“We are most concerned about a faster-than-
expected US rate rise pushing the US into
recession and ending the global business cycle.
We would also watch out for idiosyncratic EM
political/geopolitical risks and a major slowdown
in China.”