Tech giants suffer bond pushback
Bonds Baidu, Lenovo, SoftBank find long tenors a hard sell against rising rate backdropBY FRANCES YOONAsian credit investors are
becoming so wary of rising
interest rates that even popular
tech giants such as SOFTBANK
GROUP CORP, LENOVO GROUP and
BAIDU are having a hard time
raising long-term debt.
Investors pushed back
against the trio’s attempts to
lock in long maturities last
week as the era of low interest
rates draws to a close.
Lenovo had considered
selling a new US dollar 10-
year bond, but feedback from
investors put such a tenor at
too much of a premium, said a
banker on the deal.
The Chinese computer-maker
priced a US$750m five-year
unrated bond at Treasuries plus
215bp on Thursday for a 5bp
new-issue premium, according
to Nomura’s trading desk.
Search engine Baidu paidpremiums of about 15bp for
a US$1bn 5.5-year and around
10bp for a US$500m 10-year,
while Japan’s SoftBank Group
Corp decided against raising
new funds alongside an
exchange offer.
“It’s not a great market for
new issues,” said a banker on
the SoftBank trade.
Bankers said longer
maturities now appealed to a
smaller group of investors.
“These issuers have been
opportunistic and wanted
to get as much duration as
possible,” said a banker on the
Lenovo deal. “A lot of the fast
money has evaporated for long
tenors and that gives us less
momentum to tighten. Still, the
quality of books has improved,
since a lot of guys that come in
are buy-and-hold.”
Bonds from Asian tech
names, such as Alibaba, Baidu
and Lenovo, have widenedmore than 10bp in secondary
trading in the past two months.
“Market conditions are
weak, and liquid names like
these tech issuers are getting
hit harder than illiquid SOEs,”
said a Hong Kong-based credit
analyst.
The US Federal Reserve raised
its benchmark interest rate
25bp last week and forecast
at least two more increases
this year, signalling that US
inflation should finally move
higher after years below its 2%
target.
Although widely anticipated,
the move adds to the cautious
tone among fixed-income
investors, who are trying to
balance the appeal of higher
coupons on longer maturities
with the threat of rising
inflation.
“You don’t ask people to
extend duration now when the
markets are so risk averse,” saida debt syndicate banker away
from these deals.
“The only reason why it
makes sense to buy a 10-
year is if the credit improves
substantially, helping to offset
the rising rate cycle, but, with
SoftBank, that’s not the case.
They are highly levered.”TESTING THE WATERS
SoftBank still managed to
persuade investors to exchange
shorter-dated US dollar and
euro notes into new 10-year
notes.
In exchange, it will issue
US$499.956m of new 6.25% 10-
year bonds and €1.17bn of new
5% 10-year bonds.
Holders of the euro notes
were more willing to roll into
longer maturities than holders
of the US dollar notes, given
that the European Central Bank
has not yet started raising rates
this cycle.News