Haier heads to Frankfurt 08 Covered bonds come to Japan 10 Shimao forced to go short 10
quality sovereign bonds like
China should benefit from such a
risk-off environment as investors
seek safe-haven assets. So we just
adhered to the IPG level we had
set earlier,” the banker said.
The weak market, which
continued with a further drop
in global stocks on Thursday,
hit investor participation and
the order book size. “But overall
books remained strong and
the deal still attracted lots of
high-quality investors including
central banks and sovereign
wealth funds. And the final
pricings were at the tight end
of what the syndicate had
expected,” the banker said.
PRICING WITHIN EXPECTATIONS
Final pricings were within
market expectations and mainly
made reference to China’s
existing curve as well as South
Korea’s US dollar sovereign
bonds.
Nomura’s trading desk
saw fair value of 35bp, 50bp
and 70bp wide of Treasuries,
respectively, while CreditSights
expected the bonds to price at
around 30bp, 40bp and 65bp
wide of Treasuries, respectively.
ANZ saw fair value at
Treasuries plus 30bp, 50bp, and
70bp for the three respective
tranches. This implied a new
issue concession of just 5bp–
10bp, and put the 10 and 30-year
bonds flat to South Korea’s
sovereign US dollar curve.
Ahead of the announcement
of China’s IPG, South Korea’s
3.50% 2028s and 3.875% 2048s
were quoted 61bp/57bp and
74bp/69bp wide of Treasuries.
China’s US$2bn offering a
year ago priced at a tiny spread
over US Treasuries, cementing
the country’s position as an
economic heavyweight in global
debt capital markets while also
repricing the dollar curve for
state-owned Chinese banks and
corporate issuers. Last year’s
issue attracted US$21bn in final
orders, or 10.5 times the issue
size.
Not only was the
oversubscription multiple of this
year’s issue smaller, the issue
relied more on Asian support as
the participation from Europe
and offshore US was markedly
lower.
Asia accounted for 77%, 67%
and 59% for this year’s five-year,10-year and 30-year tranches,
respectively, in terms of final
orders for the unrated Reg
S issue. (See China Debt capital
markets.) By comparison, Asia
accounted for 52% and 47% of
last year’s five-year and 10-year
tranches.
China’s newly priced bonds
traded 1bp–3bp tighter across
the three tranches last Friday
morning but lost momentum
afterwards, according to a trader.
The three tranches were quoted
at 30bp/29bp, 46bp/45bp and
73bp/71bp wide of Treasuries at
lunchtime and further widened
to 32bp/30bp, 48bp/46bp, and
74bp/72bp, respectively, after the
London open.US-CHINA TENSIONS
Ongoing trade tensions and
emerging market stress have
dented risk appetite.
“Overall market sentiment
is considerably weaker than
last year. But among emerging
markets, China is more resilient.
Neither China’s CDS or its
dollar sovereign bonds widened
much amid the recent emerging
markets sell-off,” another banker
on the deal said.Anitza Nip, head of fixed
income research at Union
Bancaire Privee, said although it
was difficult to predict whether
trade frictions would deteriorate
further, the downside growth
risk to China has not been
substantial thus far.
She said that if the Sino-US
trade dispute were to extend into
geopolitical issues, cyber-attacks,
or a branching out of Trump’s
anti-China strategy to non-trade
measures, this could result in a
protracted risk premium being
placed on the Chinese market.
CreditSights said that while
the trade tensions pose risks that
could result in slower growth,
the risk to external sovereign
creditors is particularly low.
China’s MoF said in a
statement on its website that
against the backdrop of violent
fluctuations in global capital
markets, the successful bond
issue further improved the
yield curve of China’s sovereign
foreign currency bonds and
highlighted “the strong
confidence of international
investors in China’s continued
economic growth and long-term
healthy development”. For daily news stories
visit http://www.ifrasia.comLynch was bookrunner on
the April loan, which pays an
interest margin of 275bp over
Libor. East West Bank, CTBC
Bank and MB Financial Bank
participated in the loan.
Similarly, telecom equipment
maker ZTE has lost 46% of
its value since mid-April
when the US Department of
Commerce imposed a trade
ban, prohibiting American
companies from selling to ZTE
for seven years.
Even so, the company was
lucky to win consent from
lenders to a request for a
waiver of a covenant breach in
June on a US$450m four-year
loan signed in July 2014.
Earlier this month, ZTE’s
problems got worse when a US
judge ruled that it had violated
a probation imposed in March
2017, when the company
pleaded guilty for conspiring
to evade US sanctions by
illegally shipping US goods and
technology to Iran, Reuters
reported.
Either borrower could have
met a very different outcome if
they had waited as lenders are
becoming increasingly wary
of Chinese companies with
exposure to the US market.TARIFF HIT LIST
Banks are wary of taking long-
term exposure to Chinese
borrowers because of the
uncertainty and administrative
cost of keeping up with
constantly evolving tariffs.
“For every loan we assess, we
need to check if the borrower’s
products are on a list hit by US
tariffs and evaluate whether
it [the borrower] would be
affected by the trade war. Ifthose products are on the list,
then I think it is very unlikely
that the loan would get credit
approval,” a loan banker at a
Taiwanese lender’s overseas
branch said.
Last week US President
Donald Trump repeated
his threat to slap tariffs on
US$267bn of additional Chinese
imports if China retaliated
for recent US moves in the
escalating trade war and the
US Treasury secretary Steven
Mnuchin warned China not
to engage in competitive
devaluations of the renminbi.
Taiwanese banks are
among the biggest lenders
to China, but, in late June,
Taiwanese banks were already
approaching their regulatory
country limits for China and
had started to slow lending to
the country’s credits.According to Taiwan’s
Financial Supervisory
Commission, Taipei Fubon
Commercial Bank was already
at 81% of its lending limit to
Chinese borrowers, at that
time, while Cathay United Bank
was at 74%.
Notwithstanding the trade
war, the slowing Chinese
economy remains a concern.
Banks’ credit committees now
require regular financials from
borrowers to keep their risk
appraisals up to date in the
fast-changing environment and
are learning to live with a high
level of uncertainty as growth
continues to fall.
Last Tuesday, the
International Monetary Fund
cut its 2019 growth forecast
for the US to 2.5% from 2.7%
previously and China’s to 6.2%
from 6.4%.