pension total is almost US$1.6trn
equivalent, or 126% of GDP,
according to the 2017 Towers
Watson Global Pension Assets
Study.
The country’s pension mix
is unusually skewed away from
bonds with a 14% allocation
in 2016, half the 28% average
for the world’s seven biggest
pension markets.
Even though there is scope
for expansion, underpinned by
ageing populations’ typical shift
out of equities and into safer
bonds, there is scant evidence of
this happening Down Under.
Australia’s sovereign wealth
fund, the Future Fund, with
assets totalling A$134.5bn as
of September 30 2017, actually
reduced its allocation to debt
securities from year-ago levels,
dropping to 9.9% from 11.8%.
Endogenous growth will
continue to expand Australia’s
superannuation system, where
9.5% of employees’ salaries are
automatically transferred to
pension funds, but any faster
growth in bond demand requires
an allocation shift away from
equities and/or cash.
Equities had a 49% Australian
pension allocation in 2016, while
cash holdings of 16% were well
above the 3% average, according
to Willis Towers Watson,
Equities’ dominance largely
reflects the dividend imputation
system, whereby shareholders
receive a franking credit or
tax rebate worth a combined
A$30bn against their own
tax liabilities for the tax the
company has already paid.
A removal of franking credits
is hardly on the cards given the
inevitable political fallout and
likely decimation of the local
stock market, analysts have said.
Australian pensions’ large cash
holdings are a direct result of
its huge army of self-managed
superannuation funds, which
control almost 30% of the
US$2.3trn national total.
Unlike fund managers, these
do-it-yourself SMSFs target bank
deposits rather than bonds as
their safe-haven alternatives to
equities. HNA prices at
'scary' high yield
Bonds Group pays 8.875% for US$300m short-term
issuanceBY UMESH DESAIChina’s HNA GROUP has sold
US$300m of high-yielding, short-
dated bonds to global investors
in a sign that the acquisitive,
airline-to-property conglomerate
is under pressure to refinance
its debt-laden balance sheet,
according to analysts.
The group sold at par 363-day
bonds, carrying a coupon of
8.875%, for “general corporate
purposes and refinancing
existing indebtedness overseas”.
(See China Debt capital markets.)
“This is a scary number, but
they have to pay up as the costof funds has gone up, given
the levels where their 2018
bonds are trading,” said Dilip
Parameswaran, chief executive at
Asia Investment Advisors.
The yield offered is higher
than the 8.5% indicated on HNA’s
December 2018 bonds at the
time of pricing, according to
Thomson Reuters data.
The high coupon reflected
the market’s concerns about
the high levels of debt at some
Chinese companies, said Banny
Lam, head of research at CEB
International.
HNA Group did not respond to
an emailed request for comment.
Bonds with maturities of less
than one year do not require
approval from China’s top
economic planner, the National
Development and Reform
Commission and HNA Group
has made increasing use of this
instrument in recent times.
Thursday’s issue, which is
unrated, follows group companyHainan Airlines’ 364-day notes
sold the week before to raise
US$300m at a yield of 6.35%.
The sale was Hainan Airlines’
second in 2017 of dollar bonds
with a maturity of less than a
year, albeit at a higher cost. In
June, it sold 364-day bonds at a
yield of 5.5%.
HNA Group, which is under
scrutiny following Beijing’s
clampdown on highly leveraged
foreign investments, faces a wall
of maturity in coming months
with sources saying investment
banks, such as Goldman Sachs and
Bank of America Merrill Lynch, have
grown wary of working with the
company.
HNA Group has maturing
bonds of US$643m in the rest
of this year and US$2.2bn of
paper due in 2018, according to
Thomson Reuters data.
The group has unveiled
US$50bn of acquisitions in the
past two years, mostly financed
with debt.
The latest bonds, which
pay an additional 25 cents to
private-banking investors as an
incentive, has CCB International,
China International Capital Corp,
Citic CLSA Securities and Guotai
Junan International as joint global
coordinators.
“The commission indicates
they are trying to get some
private-bank customers to buy a
part of the bonds. This coupon
is roughly equal to where CCC
rated bonds are trading and
close to the 10% thumb rule
for distressed credits,” said
Parameswaran.
Private-banking investors were
the biggest participants in the
issue, accounting for 43%. Fund
managers took 36% while banks
and corporations accounted for
21%.
The issue attracted orders of
US$700m from 42 accounts.
Regionally, Asia accounted for
94% of the issue and Europe for
the rest. For daily news stories
visit http://www.ifrasia.comHK$2.72bn-equivalent before
closing the deal in October
with MLABs Far Eastern
International Bank and KGI Bank.
It is also working on another
HK$2bn one-year club loan via
coordinator China CITIC Bank
International, again offering
different terms.
It is unusual for a company to
have two loans in the market at
the same time, as loans usually
have “clear market” provisions.
“We are sure that HIFH
is borrowing via different
departments, and the clear-
market clause is not applicable
as one deal is on a club basis,”
said a second senior loan banker.
Both of HIFH’s loans carried
tighter pricing than Rongde’s
loan.
HIFH’s HK$2.72bn-equivalent
loan offered top-level all-in
pricing of 235bp, based on a
margin of 215bp over Hibor or
Libor, while its HK$2bn club loan
paid flat all-in pricing of 255bp,
based on a margin of 220bp over
Hibor.
Huarong Asset Management’s
multiple loans are also testing
the syndication capabilities
of the banks arranging the
financings.
In August, China Huarong
International Holdings signed
a US$800m one-year term
loan that was led by ANZ and
Standard Chartered.
Although the deal offered
tighter top-level all-in pricing
of 133bp based on a margin
of 100bp over Libor, it secured
the support of nine additional
lenders.
In July, Straight Vanguard
Shipping Holding, a subsidiary
of China Huarong, raised a
US$110m two-year shipping
facility. Only four banks joined
the deal, including the two leads.
Lenders’ enthusiasm for
Rongde’s loan via CTBC is also
dipping due to the deal’s lengthy
syndication.
“It takes longer for some deals
to close. We will wait and see the
outcomes of those deals as we
don’t want our efforts to be in
vain,” said the third senior loan
banker. “This coupon is
roughly equal to where
CCC rated bonds are
trading and close to
the 10% thumb rule for
distressed credits.”