Corporate Debt Restructuring Masterclass

18 July 2022 (Mon), 5pm Singapore/HK time

S&P ended marginally lower 0.14% while the rotation trade continued with Nasdaq down 1.4% as big tech stocks and those that benefitted from Covid got hit. Besides, the EU hit Amazon with formal antitrust charges. The DAX rose 0.51%, despite a 17 point drop in the German ZEW business sentiment index to 39 on fears of a second national lockdown, while the FTSE 100 and CAC 40 climbed 1.79% and 1.55%. US 10Y yields inched towards 1% while Bund yields went above -0.5%. US IG CDS spreads widened 0.75bp while HY tightened 4.5bp. EU main and crossover CDS spreads were broadly flat yesterday and Asia ex-Japan spreads tightened 2.6bp. Asian equities are marginally higher this morning up ~0.2%.

End the year by knowing the Theory and the Practical aspects of the Bond Market. BondEvalue is conducting a special Bond Traders’ Masterclass across five sessions specially curated for private bond investors and wealth managers to develop a strong fundamental understanding of bonds. The sessions will be conducted by debt capital market bankers with over 40 years of collective experience at premier global banks. Click on the image below to register.

Avail an additional 10% discount on the Masterclass package by registering before 13 Nov 2020

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New Bond Issues

  • Bank of Communications $ PerpNC5 AT1 at 4.15% area
  • Halcyon Agri $ PerpNC5 at 4.1% area
  • China Aoyuan $ 4.75NC2.75 at 6.375% area
  • Zhenro Properties 363-day green notes at 6.375% area
  • Nanjing Yangzi 364-day at 2.8% area

New Bond Issues 11 Nov

China Longyuan Power raised $300mn via a 3Y bond at a yield of 1.647%, 40bp inside initial guidance of T+180bp area. The bond, rated BBB+, received orders worth $2.5bn, ~8.3x issue size. The issuer of the bond is its wholly owned subsidiary Hero Asia Investment, rated BBB+ by S&P. The bonds have a keepwell deed and a deed of equity interest purchase undertaking provided by the Hong Kong-listed parent company. The proceeds of the issuances will be used to refinance offshore debt.

Redco Properties raised $266mn via a 3.25Y bond at 10.95%, 45bp inside initial guidance of 11.4% area. Orders were over $2bn, ~7.5x issue size. The senior notes have expected ratings of B/B (S&P/Fitch), at par with the issuer and the proceeds will be used for offshore debt refinancing, including a concurrent cash tender offer for its $180mn 9.875% senior notes due 2021. The deadline for the tender offer is November 18 when the issuer is offering to buy the 2021s at $1,010 plus accrued and unpaid interest per $1,000 in principal, subject to a cap equal to the issue size of the new bond.

Guangxi Investment Group raised $400mn via a 3Y bond at a yield of 3.6%, 30bp inside initial guidance of 3.9% area. The bonds, rated Baa2/BBB received orders over $2bn, 5x issue size. Guangxi Investment Group is the guarantor of the bond and its wholly owned subsidiary Guangxi Financial Investment Group is the issuer. Proceeds will be used for offshore debt refinancing.

China National Bluestar raised $300mn via a tap of its 3.875% Perp non-call 2023 bond at a yield of 3.63%, 42bp inside initial guidance of 4.05% area. The bonds with expected ratings of Ba3/BBB, received orders over $1.77bn, ~5.9x issue size. Bluestar Finance Holdings is the issuer and China National Bluestar (Group) Co is the guarantor. The original bond was issued on June 24 2020 and has its first call date after three years. There is a coupon reset from the first call date and every three years thereafter to the prevailing 3Y Treasury plus the initial spread as well as a 300bp coupon step-up. Proceeds will be on-lent to the guarantor’s subsidiaries for debt refinancing, working capital and general corporate purposes. The tap trades at a new issue premium of 10 bp over the initially issued bond which is trading at 3.64% in the secondary market.

 

New Bonds Pipeline

  • Central Nippon Expressway $ green bond
  • Inner Mongolia Yili Industrial $ Bond
  • Wuhan Trading Group $ Bond
  • CALG $70mn 5.9% 5Y privately placed bonds
  • IRFC up to $1bn

 

Rating Changes

Abbott Laboratories Rating Raised To ‘A’ By S&P On Expansion Of COVID-19 Diagnostics Portfolio And Leverage Reduction

Fitch Downgrades PBF Holding’s IDR to ‘B+’; Outlook Negative

Peabody Energy Corp. Downgraded To ‘CCC-‘ From ‘CCC+’ by S&P And Placed On CreditWatch Negative On Potential Covenant Breach

Moody’s downgrades Naviera Armas’ rating to Ca from Caa2; outlook negative

Moody’s changes Guatemala’s outlook to negative, affirms Ba1 ratings

Fitch Revises Saudi Aramco’s Outlook to Negative; Affirms IDR at ‘A’

Moody’s extends review for downgrade on Banca del Mezzogiorno

 

Verizon Sells $12bn of Bonds; Fifth Largest Transaction of 2020

American telecommunication giant Verizon, sold a jumbo $12bn worth of bonds in five parts with proceeds going towards general corporate purposes, which may include the completion of previously announced acquisitions, the acquisition of spectrum licenses, and the repayment of outstanding indebtedness depending on the prevailing conditions. The issuance consists of:

  • $2bn via a 5Y at a yield of 0.852% or T+40bp, 20bp inside initial guidance of T+60bp area
  • $2.25bn via a 10Y at a yield of 1.799% or T+85bp, 20bp inside initial guidance of T+105bp area
  • $3bn via a 20Y at a yield of 2.656% or T+115bp, ~20-25bp inside initial guidance of T+135/140bp area
  • $2.75bn via a 30Y at a yield of 2.888% or T+115bp, 20bp inside initial guidance of T+135bp area
  • $2bn via a 40Y at a yield of 3.038% or T+135bp , 15bp inside initial guidance of T+150bp area

The bonds have expected ratings of Baa1/BBB+/A-. Verizon spent nearly $2bn on 5G spectrum lease rights at a federal auction in September and is expected to spend more in the C-band auction which begins on December 8 as per Bloomberg. “The C-band spectrum is a ‘must-have’ for Verizon, so investors should consider the possibility that Verizon spends $20 billion or more,” said analysts from CreditSights. The latest jumbo issuance comes after the vaccine news which has seen volumes increase across the spectrum. Verizon’s dollar bonds were slightly lower – 5.15% 2023s down 0.4 to 113.04 and 5.125% 2033 down 1.2 to 115.21.

For the full story, click here

 

Covid Vaccine Optimism And the Bond Market

Bonds of issuers that have been hit hard by Covid since March sensed some optimism on the news of Pfizer and BioNTech’s vaccine. The worst hit sectors by the Covid shock included transportation, leisure, energy and their likes whereas sectors that benefitted included the online and tech space. Ever since the vaccine news hit the headlines, rotation trades have occurred particularly in stock markets where stocks of tech and growth companies have fallen while value stocks and those affected by Covid have risen. Bonds too have had their share of the so-called ‘rotation trades’. The table below highlights this trend through a list of bonds from a range of sectors sorted by returns since the news on the vaccine hit the wires. The travel and leisure sectors gained the most while the tech sector saw a downside.

 

Tsinghua Unigroup Dollar Bonds Get Beaten Down on a Possible Default

Troubled chipmaker Tsinghua Unigroup has requested for an extension of a two-year CNY 1bn ($151.6mn) trust loan without credit enhancement which matured on Monday, according to REDD. The loan which was issued by China Jingu International Trust in November 2018 and whose lender was a commercial bank in Anhui province is still awaiting approval from Anhui bank. According to REDD, a missed payment could lead to a first default of their trust loan and might spill over even to its dollar bonds. Apparently, Tsinghua is seeking bank loans to refinance their 5.6% CNY 1.3b ($200mn) bond due in four days but banks are still having internal discussions on whether to approve the credit line.

The above news comes after a domestic rating firm, China Chengxin International Credit Rating put the company under its watchlist for a potential downgrade. “The company is yet to meet expectations on introducing new investors this year while its recent decision not to call back a yuan perpetual bond also shows stress…the key thing is watch if they can get any government support”, said an analyst at Nanjing Securities. The rating agency notes that Tsinghua’s total liabilities stood at CNY 52.8 (~$7.9bn) of which 60% is short-term, ending September. Cash levels were at CNY 4bn ($600mn), and the company faces CNY 1.3bn ($200mn) and $450mn worth debt maturing by end of 2020; another CNY 5.1bn (~$770mn) and $1.05bn of bonds are maturing in the first half of next year.

Tsinghua decided not to call back its Perpetual bonds end-October following liquidity concerns. It said it would not redeem its RMB 1bn ($150mn) 6.5% Perp Non-Call 5Y bonds on the first call date of October 30, but would pay the related interest. The non-call event triggered a sell-off of its bonds which have been continuously falling over the last week. Their 4.75% 2021s were down 6.9 points to 42.5 while Unigroup’s 6% 2020s were down ~30 points to 38.9.

For the full story, click here

 

EU Opens Second SURE Bonds’ Issuance Worth €14bn

The European Union continues to see a huge demand for its second SURE bonds’ issuance of €14bn ($16.5bn). The bonds were welcomed by the investors and saw a combined demand of 10x. The EU bonds had also witnessed a 14x demand in the previous SURE bond issuances last month where the EU raised €17bn ($20bn) and saw orders of ~€233bn ($275bn). In this second issuance, the EU will raise:

  • €8bn ($9.4bn) via a 5Y bond which has received a demand ~€85bn ($100.3bn), over 10x issue size
  • €6bn ($7.1bn) via a 30Y bond which has received a demand ~€55bn ($64.9bn), over 9x issue size

The shorter tranche will price at 9bp below mid-swaps and the longer tranche at 21bp over the mid-swap level. “Although the EU would pay more than it would have last week it managed to bring a very large size out given arguably much more challenging market conditions because of the sell-off we had yesterday…you could have expected investors to get a bit twitchy”, said a senior rates strategist at ING.

For the full story, click here

 

China Issues Draft Antitrust Guidelines for Internet Companies

In a sign of the growing discomfort around the relatively unfettered regulatory regime enjoyed by the big tech giants operating in the cyberspace, China has released draft of new antitrust guidelines targeting them. This is the first time that the Chinese regulators are looking to enshrine specific anti-competitive behaviours by internet companies, such as demanding vendor exclusivity or providing differentiated pricing to end consumers, in law. The move comes on the heels of the surprising derailment of Ant Group’s record breaking IPO and has clearly had the effect of spooking an already jittery market. Bonds of internet giants reacted with Alibaba 4% 2037 bond, trading down 2.3%, Tencent 3.24% 2050 bond down 0.9% and JD.com 3.375% 2030 slid 0.5%.

The moves by Chinese regulators to regulate big tech are aligned to recent global trends – in the EU, formal antitrust charges against Amazon were revealed by the authorities just this week and in the US, Justice department has filed an antitrust lawsuit against Google last month and the House antitrust subcommittee as vowed to consider legislation to regulate big tech with a new democratic presidential administration at the helm.

For the full story, click here

 

Tencent Music Entertainment Reports Q3 Revenues, Online Music Subscribers Up 46%

China’s Tencent Music Entertainment (TME) announced its unaudited financial results for Q3 ended September 30 on Tuesday. The Q3 revenue was up 16.4% YoY and stood at RMB7.58bn ($1.12bn). The highlights of the results are as follows.

  • Online music subscription revenues grew by 55.0% YoY to RMB1.46bn ($215 mn).
  • The revenue from the online music services increased by 25.9% to RMB2.32bn ($342mn) from RMB1.85bn ($280mn).
  • The online music paying subscribers were up 46% YoY to 51.7mn against 35.4mn last year. The users grew by 4.6mn, up from 4.4mn in Q2.
  • The revenues from social entertainment services were also up 12.7% at RMB5.25bn ($773mn).

Tencent Music Entertainment Group (NYSE: TME) is the leading online music entertainment platform in China, operating four highly popular and innovative music apps in China: QQ Music, Kugou Music, Kuwo Music and WeSing. The growth comes at a time when a large section of the population is working from home due to the ongoing pandemic and is indicative of the fact that the users have increase the usage of social media and entertainment apps. The bonds of TME were slightly down. Its 1.375% and 2% bonds maturing in 2025 and 2030 were down 0.07 and 0.66 to trade at 99.78 and 98.45 cents on the dollar respectively.

For the full story, click here

 

Russia to Issue Eurobonds for the First Time after 2019

Russia’s finance ministry has announced that it has picked up three state run banks (VTB Capital, Gazrombank and Sberbank) for the issue of its first Eurobond of 2020. According to market sources, the debt which will cover the budget shortfall due to the pandemic as well as the drop in oil prices is likely to be funded through two tranches with a maturity of 7Y and 10Y/12Y respectively. The sovereign had planned to raise $3bn in Eurobonds earlier this year which had to be put in a cold storage due to the twin effects of the pandemic as well as risk of sanctions by the western countries. Last month Russia’s Finance Minister Anton Siluanov revealed that the country was considering a euro-denominated Eurobond before the year-end, the sale of which would depend on the outcome of the U.S. presidential election. The Russian market reacted favorably to the victory of Joe Biden and its currency saw the biggest one-day gain since November 2016. Russia’s 12.75% 2028s were up 0.05 to 171.4, yielding 2.43% while its 4.375% 2029s were down 0.09 to 115.9, yielding 2.27%.

For the full story, click here

 

Peru’s President Impeached Pushing the Country into Political Uncertainty

In a surprise move, Peru’s President Martin Vizcarra has been impeached over allegations that he took bribes to the tune of PEN 2.3mn ($642,000) pushing the sovereign into a political crisis at a time when the economy of the country has shrunk by 30.2% in Q2. The head of congress, Manuel Merino, will take over as the  interim president making him the third president within 5 years. A former finance minister of Peru, Alonso Segura commented that “I can’t see how this won’t be perceived badly by investors,” adding that “The only question is how badly.” Peru’s 2.75% and 8.75% bonds maturing in 2026 and 2033 were down 0.09 and 0.04 to trade at 119.97 and 170.35 on the secondary market respectively.

For the full story, click here

Term of the Day

Basis Points

A basis point (denoted as ‘bp’) is a unit of measurement for tracking the yields and the changes thereof across bonds. A basis point is calculated as one-hundredth (1/100) of a percentage point. In other words, 1% can also be called as 100bp. Similarly, if yields move up by 0.2%, they have moved by 20bp

 

Talking Heads

On the opportunity in Asia’s junk dollar bonds – Salman Niaz, head of Asian credit at Goldman Sachs Asset Management

“We continue to view the return potential in Asia high-yield, in an otherwise low-rate environment, as being attractive,” said Niaz. “We think the market is too pessimistic about potential default probability over the next 12 months,” said Niaz. The region has also handled the spread of the coronavirus better than other areas, which is a positive, he added.

On foreign inflows into Asian bonds surge on higher yields and recovery hope

Khoon Goh, head of Asia Research at ANZ.
“We expect investor focus to return to Asia’s improving fundamentals. The region’s exports have recovered fully to pre-pandemic levels by September and continue to grow,” said Goh. “Given ample global liquidity, foreign inflows into the region should see a pick-up,” he said.

In a report by MUFG Bank
“Malaysia’s real yield is keeping MGS (Malaysian government securities) attractive,” MUFG reported. “Currently at 3.15%, its real yield has been the highest amongst Asia ex-Japan since March.”

On the demand for Chinese dollar bonds at lowest levels since March 2020 – Owen Gallimore, head of credit strategy at Australia & New Zealand Banking Group

“The dip in books for Chinese dollar bond offerings was a market-wide phenomenon and we now expect to bounce back strongly post election uncertainty,” said Gallimore. “The deluge of small China property deals should grow to the more-in-demand China SOE and financials,” he said.

On downgraded British retailer Marks & Spencer back in debt market as high yield issuer – Benjamin Sabahi, head of credit research at Spread Research

“Issuers should tap the market because demand is very impressive as we’ve seen from recent transactions from both euro and sterling accounts,” Sabahi said.

 

Top Gainers & Losers – 11-Nov-20*

BondEvalue Gainer Losers 11 Nov

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