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20 July 2022 (Wednesday) | 9am-5pm

US markets hovered around the highs ahead of the Big Tech earrings. S&P was up 0.2% and Nasdaq nudged higher 0.03% created new closing records. Energy up 2.5% and Materials, Consumer Discretionary and Communication Services up ~0.7% pulled the markets higher. Corporate earnings continued as Tesla beat expectations (detailed below) while Lockheed Martin delivered disappointing results. All eyes are now set on the earnings of Apple, Microsoft, Google and Starbucks. Meanwhile, a high level meeting between US and China ended without any material output amid escalated tensions. US 10Y Treasury yields rose 2bp to 1.28%. European stocks were mixed – CAC was up 0.2%, FTSE was flat and DAX was down 0.3%. US IG CDS spreads tightened 0.2bp and HY widened 1.8bp. EU Main and Crossover spreads widened 0.4bp and 3bp respectively. Brazil’s Bovespa was up 0.8%. Saudi TASI and UAE’s DAX were up 0.2% and 0.9% respectively. Asia Pacific stocks edged higher as mainland China stocks gained – the Nikkei, Shanghai and Singapore’s STI were up 0.3-0.5% while HSI was down ~0.7%. Asia ex-Japan CDS spreads were 1.6bp wider.

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New Bond Issues

  • AVIC International Leasing capped € 250mn 364-day bonds at 1.35% area

  • Chongqing Wansheng ETDZ $89mn 3Y at 2.3% area

New Bond Issues 27 Jul-1

Adani Ports SEZ raised $750mn via a two-trancher. It raised $300mn via a 10.5Y bond at a yield of 3.828%, 25bp inside initial guidance of T+280bp area. It also raised $450mn via a 20Y bond at a yield of 5%, 25bp inside initial guidance of 5.25% area. The bonds have expected ratings of Baa3/BBB-/BBB-, and received orders over $1.98bn, 2.6x issue size. For the 10.5Y, Asia took 47%, the US 30% and EMEA 23%. Fund/asset managers bought 61%, insurers, sovereign wealth funds and pension funds 22%, banks and financial institutions 9% and private banks 8%. For the 20Y, Asia took 36%, the US 38% and EMEA 26%. Fund/ asset managers bought 77%, insurers and pension funds 12%, private banks 7% and banks and financial institutions 4%. Proceeds will be used to repay debt as well as for the capital expenditure and the general corporate purposes of the issuer and its subsidiaries in India and Sri Lanka.

Temasek raised $2.5bn via a three-trancher. It raised:

  • $750mn via a 10Y bond at a yield of 1.688%, 20bp inside initial guidance of T+60bp
  • $750mn via a 20Y bond at a yield of 2.506%, 15bp inside initial guidance of T+80bp area
  • $1bn via a 40Y bond at a yield of 2.799%, 15bp inside initial guidance of T+100bp area

The bonds have expected ratings of Aaa/AAA. Temasek Financial (I) is the issuer and Temasek Holdings is the guarantor. Proceeds will be used to fund its ordinary course of business.

ICBC Financial Leasing raised $1.25bn via a three-trancher. It raised:

  • $450mn via a 3Y bond at a yield of 1.264%, 40bp inside initial guidance of T+130bp
  • $550mn via a 5Y bond at a yield of 1.804%, 35bp inside initial guidance of T+145bp area
  • $250mn via a 10Y bond at a yield of 2.753%, 30bp inside initial guidance of T+185bp area

The bonds have expected ratings of A2/A and received orders over $4.1bn, 3.3x issue size. ICBCIL Finance is the issuer with a keepwell and liquidity support deed, as well as a deed of asset purchase undertaking, from ICBC Financial Leasing. ICBCIL Finance is a wholly owned subsidiary of Industrial and Commercial Bank of China, which owns ICBC Financial Leasing.

Fujian Yango Group raised $250mn via a 2 year 5 month bond at a yield of 12.5%. The bonds have expected ratings of B-. Yango (Cayman) Investment is the issuer and Fujian Yango Group is the guarantor. Proceeds will be used for debt refinancing, including a tender offer for its outstanding $285mn 12.5% 2021s at par plus accrued and unpaid interest. The deadline is August 2, 2021.

New Bonds Pipeline

  • Gemdale Corp hires for $ green bonds

  • India Cleantech Energy/ACME Solar Holdings hires for $ amortizing 5Y green bond

  • Chindata Group hires for $ green bonds; calls today

 

Rating Changes

 

ICYMI: Chinese Developers’ Bond Spreads Widen as Focus on Three Red Lines Increases

In case you missed it – China’s real estate developers’ high yield Index underperformed its peers witnessing a sharp drop of 6% in June and down 3.7% YTD. Investor concerns were apparent since the start of Q2 with Z-Spreads widening across certain Chinese real estate developers. China Evergrande’s Z-Spread widened by a massive 1,800bp since April, the highest in the sector as investor concerns grow over its liquidity position. The ‘three red-lines’ (Term of the Day, explained below), a key regulatory threshold for property developers set by Beijing has become an important factor that separates the winners and the losers.

chinese-property-developers-z-spread-change-since-april

In this editorial piece, we detail the widening Z-Spreads across companies in the Chinese property sector, the sector’s underperformance, and the three red-lines calculations of the key players.

Read the full report

Term of the Day

Three Red Lines

The ‘three red lines’ are leverage guidelines set for select property developers in China. They consist of caps on the following ratios:

  • Liabilities to assets (ex-advanced proceeds) not more than 70%
  • Net Debt to Equity not more than 100%
  • Cash to Short-term Debt greater than 1x

These ratios were devised by China’s PBOC and Ministry of Finance. Not adhering to these ratios would result in them being cut-off from new loans. Those who adhere to all three ratios can increase debt by 15% in the subsequent year.

Click here to view the calculations of the three red lines for China’s property developers.

Jamie Fahy, global macro strategist at Citi
“Even though the underlying growth backdrop is very strong, the market has moved from thinking about reflation to maybe a little bit of stagflation fear.”
Peter Chatwell, head of multi-asset strategy at Mizuho
“Real yields are telling us the truth about how Fed policy will translate into considerably higher inflation over the medium term,” he said.
“This may sound sacrilegious, but occasionally the role of central banks in markets can be overstated.” “Expectations of future interest rates, particularly at long horizons, and term premia are largely driven by economic factors beyond the current monetary policy stance,” he wrote. “The economy and markets face extraordinary challenges. But it is during these times one needs to remember the playbook, not throw it out the window.” “Assuming government bond risk is highly one-sided, with low interest rates implying there is no room for bonds to rally, is misguided.” “Should we see a de-anchoring of inflation expectations, perhaps driven by fears over the extraordinary levels of fiscal and monetary stimulus,” then long-term yields would have upwards pressure.
Hao Zhou, senior emerging markets economist at Commerzbank AG
“The market is concerned about regulation tightening which might drag down growth in the coming quarters.” “The policy uncertainties derived from the crackdown on private tuition has also dampened the sentiment.”
Ting Lu, chief China economist at Nomura Holdings Inc
“Beijing has already cut the reserve requirement ratio and we expect it to introduce additional monetary and fiscal easing measures.” The economy “will face significant risks in coming months due to the unprecedented tightening measures applied to the property sector,” he said.

Yang Hao, fixed income analyst at Nanjing Securities Co
“Funds are slowly buying more bonds after falling short on allocation previously.” “Changing regulations in areas such as real estate may weaken economic growth and credit conditions, boosting appetite for bonds.”
“Companies underestimated how much below expectations traffic figures can be and how long it would take to relax restrictions.” “Their initial forecasts back in the summer of 2020 were that the pandemic would subside after the first few months.” “I don’t think it makes sense for investors to aggressively push back now,” she said

Top Gainers & Losers – 27-Jul-21*

BondEvalue Gainer Losers 27 Jul-2
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