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15 November 2022 (Tuesday) | 9am-5pm

US Benchmark & Global Indices 10 Nov

Global equities rallied late yesterday with news of Pfizer and BioNTech’s experimental Covid vaccine being more than 90% effective based on initial trial results. The risk-on sentiment particularly bolstered pandemic hit sectors with some stocks up over 10%. Boeing and Airbus were up 15% and 18%, Hilton Hotels up 12% and the financial sector was up 8%. S&P ended 1.2% higher while Nasdaq was down 1.5% – Zoom down 17%, Roku down 13%, Amazon and Facebook down 5%. DAX, CAC and FTSE rallied 5%, 7.5% and 4.7%. Crude oil was also up 6%. The US Treasury curve steepened with the 10Y yield up 15bp on the news, breaking past the June high of 0.97%. Yields have eased a bit from those levels over the course of the day to 0.92%. US junk bond yields hit a record low with the Bloomberg US HY yield to worst at 4.56%. US IG and CDS spreads were tighter 1.1bp and 30bp while EU IG and HY CDS spreads were tighter 2.9bp and 23bp respectively. Asian equities have advanced over 1.1% today and Asia ex Japan CDS spreads were tighter by 2.8bp.

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New Bond Issues

  • Standard Chartered $ 15.25NC10.25 tier 2 @ T+260bp area
  • China National Bluestar $ tap Perp NC3 3.875% @ 4.05% area
  • China Longyuan Power $ 300 mn 3yr @ T+180bp area
  • Guangxi Investment Group $ 3yr @ 3.9% area
  • Redco Properties $ 3.25yr @ 11.4% area

 

New Bond Issues 10 Nov

Westpac, the Australian bank, raised $2.5bn via a Tier 2 dual-trancher. It raised $1.5bn via a 15Y non-call 10Y (15NC10) at a yield of 2.668%, 30bp inside initial guidance of T+205bp area. It also raised $1bn via a 20Y at a yield of 2.963%, 35bp inside initial guidance of T+160bp area. The bonds were rated Baa1/BBB+/A-. Westpac’s two notes had a combined $15.6bn order book, 6.24x issue size, with the 15NC10 receiving $7.7bn and the 20Y $7.9bn of demand. The newly issued bonds have a new issue premium of 7bp and 3bp vs. Westpac’s July 2034 non-call 2029s and July 2039s.

China Orient Asset Management raised $750mn via a two-trancher. It raised $450mn via a 5Y bond at a yield of 1.93%, 45bp inside initial guidance of T+195bp area. It also raised $300mn via a 10Y bond at a yield of 2.86%, 48bp inside initial guidance of T+240bp area. The bonds have expected ratings of BBB+/A and received combined order books of over $10bn, ~13x issue size. There is a change of control put at 101. Proceeds will be used to repay the guarantor’s and/or its subsidiaries’ debt.

Agile Group raised $183mn via a tap of its 6.05% 2025s at a yield of 5.95%, 30bp inside initial guidance of 6.25% area. The Hong Kong-listed Chinese property developer is rated Ba2 by Moody’s and BB by S&P, while the notes have an expected Ba3 rating. The issue received orders over $900mn, ~5x issue size. Proceeds from the tap will be used for offshore debt refinancing.

Kaisa Group raised $200mn via a tap of its 11.95% 2023s at a yield of 10.55%, 30bp inside initial guidance of 10.85% area. The Hong Kong listed Chinese real estate company’s notes have an expected B2/B rating. The issue received orders over $1.35bn, 6.75x issue size. Proceeds will be used for offshore debt refinancing. The tap is being done alongside a concurrent tender offer. Kaisa said the tender offer and the reopening are being made as part of efforts to proactively manage its balance sheet liabilities and optimize its debt structure.

Yango Group raised $270mn via a 4.25Y non-call 2.25Y green bond at a yield of 7.75%, 50bp inside initial guidance of 8.25% area alongside a tender offer. The issue is rated B+ and received orders over $2.45bn, ~9x issue size. Yango Justice International is the issuer and the Shenzhen-listed parent company is the guarantor. Proceeds will be used for offshore debt refinancing.

 

New Bonds Pipeline

  • Bank of Communications $ AT1
  • Inner Mongolia Yili Industrial Group $ bond
  • Wuhan Trading Group $ bond
  • Halcyon Agri $ Perpetual with a guarantee from Sinochem International
  • CALG $70mn 5.9% 5Y privately placed bonds
  • IRFC up to $1bn bond
  • Central Nippon Expressway $ green bond

 

Rating Changes

American Airlines Group Inc. And American Airlines Inc. Selected Secured Bank Facilities And EETCs Downgraded

Icahn Enterprises L.P. Downgraded To ‘BB’ On Higher Leverage; Outlook Negative

Community Health Systems Inc. Downgraded To ‘CC’ From ‘CCC+’ On Cash Tender; Debt Ratings Lowered; Outlook Negative

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

Fitch Revises Outlook on Chailease Group to Stable; Affirms Ratings

Fitch Affirms MTN at ‘BB’; Withdraws Ratings

Fitch Affirms Mersin’s Senior Unsecured Debt at ‘BB-‘, Outlook Negative

Moody’s changes Sysco’s outlook to negative; affirms Baa1 senior unsecured rating

Moody’s: Pfizer’s COVID-19 vaccine efficacy data credit positive

Moody’s announces completion of a periodic review of ratings of Nan Fung International Holdings Limited

Moody’s affirms ratings of all six Chinese toll road companies, changes outlook to stable

 

Oman Plans to Transfer Stake in Oil Block & Issue Dollar Debt from New Entity

The Sultanate of Oman is planning to raise as much as $3bn off government books by leveraging the country’s biggest oil block that produces 75% of the country’s oil reserves, Bloomberg reported on Monday quoting multiple unnamed government sources. The plan is set to entail Oman transferring 60% equity in Block 6 from the existing state-owned Petroleum Development Oman to a new entity, which would then raise money from financial markets. While the detailed structure of the transaction remains unknown, it is likely to be similar to reserves-based lending facilities used heavily by US shale producers, and it has the potential to set up a template for other gulf nations to follow.

The Oxford-educated ruler of the nation, Sultan Haitham, has made a concerted effort to shore up the cash-strapped country’s finances from multiple sources recently. He approved a 2020-2024 fiscal plan that involved the Sultanate levying income tax on individuals from 2022, a first in the region and introducing a 5% value added tax starting next year. In addition, the country is in talks to receive $1bn worth of aid from Qatar, and has raised $2bn from the international bond markets last month. With debt to GDP ratio set to scale above 90% next year as per IMF projections, the move to raise off-government-books financing is another clear effort by the Sultanate to ease the fiscal pressures by diversifying liquidity sources.

Oman’s 6% 2029s were up 1.7 to 97.6, yielding 6.36% while their 3.875% 2022s were up 0.13 to 99.7, yielding 4.13%.

For the full story, click here

 

Softbank Reports Earnings; Reshuffles Board

Softbank reported  H1FY20 earnings, with net income at JPY 1,883bn ($17.8bn) as compared to JPY 422bn ($4bn) in the same period last year. An interim dividend of JPY 22/share ($0.21) was decided. Softbank has increased cash holdings by ~$16.5bn over the last six months to ~$48.7bn as part of its plan to increase cash reserves on account of the pandemic. The company also mentioned that it spent ~$1.35bn in buybacks during October. Investments in public tech stocks were worth $20bn, of which $3.4bn was in equity derivatives. Softbank has sold some stakes in Brightstar, Alibaba, ARM and T-Mobile.

Meanwhile they also removed 3 senior executives from its board – the COO, Chief Strategy officer and the head of its $100bn Vision Fund, Rajeev Misra on the back of corporate governance pressures. Softbank’s results showed improved performance at two Vision Funds, which invest in tech start-ups, but also reported a $1.3bn loss on tech stocks bets. The results were the first since the headlines on “Nasdaq’s blue whale” took to the news. “People say we’re the Nasdaq whale, but the [derivatives] only account for 1 per cent of what we hold,” Mr. Son said as per the FT.

Softbank’s dollar bonds were up – its 6% Perps were up 1.7 to 96.98 while the 6.25% 2028s and 4.75% 2024s were up 0.8 and 0.4 to 110.41 and 103.15 respectively.

For the full story, click here

 

Evergrande Scraps Shenzhen Listing Plan

China Evergrande, the debt burdened property developer decided to terminate a reorganization plan with Shenzhen Real Estate, ending an anticipated backdoor listing plan in Shenzhen, in a filing with the exchange. Evergrande had been looking to seek regulatory approval to list its subsidiary Hengda Real Estate on the Shenzen stock exchange. Evergrande had raised RMB 130bn ($19bn) by selling stakes in Hengda but would have to repay investors’ money if the subsidiary failed to list by January. Updates related to the Evergrande’s strategic investors are listed below:

  • Late September, Evergrande said it struck an agreement with investors, representing a RMB 86.3bn ($13bn) stake, that they would not demand repayment and will continue to hold their interests in Hengda Real Estate
  • Negotiations with strategic investors holding RMB 35.7bn ($5.4bn) in equity have been completed, and supplemental agreements will be entered into soon
  • Negotiations with strategic investors holding RMB 5bn ($760mn) are in progress as it would involve the asset restructuring of their own major shareholders
  • Evergrande has paid the principal of the remaining strategic investors holding RMB 3bn ($450mn) in Hengda and will repurchase their equity

“The termination of the deal means the company will need to consider other channels in a bid to lower their leverage…Possible avenues include the listing of its property management arm in Hong Kong, the introduction of strategic investors to Evergrande vehicle, a bid for a dual listing on the Shanghai Stock Exchange’s Sci-Tech Board and continuous price cuts to accelerate contracted sales” said an analyst from Lucror Analytics.

In related news, billionaire Zhang Jindong, founder of Suning Appliance who helped Evergrande avoid a cash crunch by not seeking repayment of RMB 20bn ($3bn), saw his companies’ local currency bonds fall ~13% as per Bloomberg. “Bondholders had been counting on Suning to recoup its investment in Evergrande…now you would need to be very bold to lend money to the company” said a partner in an investment company. Granda Century’s 7.5% dollar bonds due 2021 guaranteed by Suning were down 0.4 over the last two days to 93.9 cents on the dollar whereas Hengda’s 11.5% dollar bonds due 2022 were up 0.21 to 85.83 and its 12% bonds due 2023 were up 0.06 to 82.68.

For the full story, click here

 

Fitch Revises Saudi Outlook to Negative Even as Oil Soars

Fitch has revised the outlook for the oil rich Saudi Arabia to Negative from Stable while maintaining the Issuer Default Rating (IDR) at A. The rating action comes as the fiscal account and the balance sheet of the oil producer have taken a hit on the back of weak demand and lower oil prices. The rating agency views the efforts taken by the Government to handle the pandemic positively and has thus maintained the long term rating. The key forecast metrics considered for the revised outlook include the following:

  • Govt budget deficit is expected to rise to 12.8% (~$90bn) of GDP in 2020 from 4.5% last year largely based on a 33% drop in oil revenue. The fiscal deficit is forecasted to drop to 8% in 2021 and 5% in 2022
  • Sovereign Net Foreign Assets (SNFA) are expected to decline to 60% of GDP by 2022 from ~72% in 2019-2020 on the back of debt issuance and reserve drawdown
  • Govt reserves consisting of deposits at the Saudi Arabian Monetary Authority (SAMA), are likely to drop to 16% of GDP by 2020 and 12% of GDP in 2022, from 18% of GDP in 2019
  • The real GDP is forecasted to contract by ~ 4% this year due to the lower oil production and pandemic disruptions

Moody’s rates the country at A1 and had revised the outlook to negative in May this year. S&P rates the country at A- with a stable outlook. The Saudi ministry of finance in a statement said that despite the negative outlook, the country’s ratings “have demonstrated notable resilience with three consecutive rating affirmations by the three major credit rating agencies since the onset of the crisis in March 2020.”

Interestingly, the outlook revision comes at a time when the oil prices have soared by ~10% and WTI Crude topped $40 a barrel on Monday, after the news of 90% efficacy of Pfizer’s Covid-19 vaccine. Saudi’s longer dated bonds were down ~0.5 points. Its 5.25% and 4.5% bonds maturing in 2050 and 2060 were trading at 137.6 and 127.4 on the secondary market.

For the full story, click here

 

SIA Reports Largest Ever Quarterly Loss of $1.7 Billion

Singapore Airlines (SIA) reported total revenues of S$784mn ($582mn) for the quarter ending September 30, down 8% vs. the prior quarter and 81% vs. the same quarter last year. The slump in international travel led to SIA reporting its largest ever quarterly loss of S$2.3bn ($1.7bn). This took the first half loss to $3.5bn, which includes non-recurring charges such as $1.3bn of aircraft impairment loss and $170mn goodwill impairment related to its acquisition of Tiger Airways. CEO Goh Choon Phong said during a briefing on Monday that the airline is in advanced talks to raise funds from the bond markets and by sale and leaseback (Term of the day, explained below) transactions. This comes after SIA raised S$11.3bn ($8.4bn) via a rights issue and loans in September. He added, “We have one of the strongest, if not the strongest liquidity position among airlines” referring to SIA’s net cash position of S$7.1bn ($5.3bn) as at end September. It has not made a decision yet on whether to issue the remaining S$6.2bn of mandatory convertible bonds announced earlier in March this year. SIA has until the next annual general meeting to decide on this.

SIA’s 3.13% SGD bonds due 2027 traded largely stable at 98 cents on the dollar yielding 3.45% on the secondary markets.

For the full story, click here

 

FAA Set to Allow Boeing 737 Max Back to the American Skies

Boeing’s 737 Max could soon get back to the American skies as US aviation regulators are in the final stages of their review on the grounded airliner. The certification could come as early as November 18 according to Bloomberg. This is a significant step for Boeing specially since the 737 is the company’s best-selling passenger aircraft. FAA Administrator Steve Dickson revealed through an email statement that the agency expects to complete its review of changes to the aircraft “in the coming days,”. Boeing’s 737 Max 8 has been grounded since March 2019 after 346 people lost their lives in two crashes. The news comes at a time when Pfizer and Biontech have announced that COVID-19 vaccine was found to be more than 90% effective in preventing the disease. This could potentially increase the air travel demand which has been muted ever since the pandemic shock gripped the world. Boeing’s longer dated bonds reacted to the news positively. The 3.85% bonds maturing in 2048 were up 3.43 points at 93.958, the 5.805% bonds maturing in 2050 were up 2.29 points at 124.8 and the 5.93% bonds maturing in 2060 were up 3.6 points at 128.3 points.

For the full story, click here

 

Oxy Reports Earnings With Larger than Expected Loss

Occidental (Ba2/BB+/BB), the energy company and one of the big oil producers in the US, reported a net loss of $3.8bn for the third quarter. They mentioned that they exceeded their $2bn 2020 divestiture target, raising $5bn in senior unsecured debt, retiring $5bn of near-term maturities and reducing outstanding debt by $1.3bn YTD. Oxy, which announced in June that it would restructure its debt to avoid possible default saw its long-term net debt at $35.9bn as on end-September, slightly lower from $36.03bn in June. Occidental took on significant debt to acquire Anadarko for $38bn last year and has been cutting jobs especially with the Covid induced impact. “We delivered improved operating cash flow in the third quarter and achieved the highest quarterly free cash flow since 2011, driven by the strong performance of our businesses and our laser focus on margin preservation, reflecting our leadership as a low-cost operator,” said the President and CEO. Oxy’s bonds were mixed with its 2.9% 2024s down 2 points to 88.5, while its 8.45% 2029s were up over 1 point to 98.3.

For the full story, click here

Term of the Day

Sale and Leaseback

This is a transaction where a person/company leases an asset to himself/itself after selling it. This is sometimes common in the airlines, real estate, REITs space where fixed assets are a significant chunk on the balance sheet. These transactions are either done for accounting and taxation purposes or in times of distress. As part of generating some liquidity, sale and leasebacks can be an option besides raising money through traditional routes such as bond issuances. The sale of the asset generates money/cash inflow for the seller whereas the buyer of the asset is interested in securing a long term investment – the buyer will lease the asset back to the company/seller in return for lease payments.

In an earnings call, Singapore Airlines’ key executives told the media and analysts that they were exploring additional means, including sale-and-leaseback for some of its aircraft, and further tapping the debt capital market to raise liquidity.

 

Talking Heads

On Britain chancellor to announce UK’s first green sovereign bonds

Andrew Bailey, Bank of England governor

“Compared to the financial crisis and the pandemic, the risks from climate change are even bigger and more complex to manage,” said Bailey. “Our goal is to build a UK financial system resilient to the risks from climate change and supportive of the transition to a net-zero economy.”

Nikhil Rathi, chief executive of the Financial Conduct Authority

“From January 1 we are introducing rules requiring premium listed companies to make better disclosures about how climate change affects their business, consistent with the recommendations of the Taskforce on Climate-related Financial Disclosures,” said Rathi.

On the likelihood of US default wave and asset declines due to pandemic – in the latest biannual Financial Stability Report by the Fed

“As many households continue to struggle, loan defaults may rise, leading to material losses” for lenders, the Fed said. Business debt “has risen sharply as businesses increased borrowing to weather the period of weak earnings. The general decline in revenues associated with the severe reduction in economic activity has weakened the ability of businesses to services these obligations.” Asset prices “remain vulnerable to significant declines should investor risk sentiment fall or the economic recovery weaken.”

“So far, strains in the business and household sectors have been mitigated by significant government lending and relief programs and by low interest rates,” the Fed said on Monday. “In the near term, risks associated with the course of COVID-19 and its effects on the U.S. and global economies remain high,” the Fed reported.

On China expecting less volatility but tougher relations with Biden presidency

Shi Yinhong, professor at Renmin university in Beijing, who advises China’s State Council on foreign affairs

“There will be no significant difference under Biden on major issues such as Taiwan, Hong Kong, the South China Sea, Xinjiang, Tibet and China’s religious and human rights situations,” said Shi. “But Biden is not nearly as wild, vulgar and volatile as Trump, so he can be expected to bring more predictability and stability to Washington’s China policy.”

Lu Xiang, a US affairs expert at the Chinese Academy of Social Sciences in Beijing

“Biden sees China as a competitor while Trump sees China as an adversary,” said Lu. “Competitors’ relations are based on rules.”

On Turkey’s possible policy moves after leadership shakeup

Phoenix Kalen, strategist at Societe Generale SA in London

“The market’s strong positive reaction reflects expectations that the upheaval in economic policy making taking place among Turkey’s leadership warrants a dramatic shift in strategy – one that brings Turkey back to a more orthodox policy framework with a stronger commitment to an appropriately tight monetary stance.” “There may also be a market perception that Berat Albayrak’s disappearance from the policy equation renders orthodox economic and monetary policy-setting more likely, as he had clashed previously with Naci Agbal over economic policies.”

Henrik Gullberg, strategist at Coex Partners in London

Turkish assets are rallying probably “because traders think the probability of sufficient rate hikes has increased. But that is not because a new and more hawkish central bank governor has been announced, rather that the lira depreciation has become too painful even for lawmakers to stomach, so there is no other choice. But that would have happened also under Uysal.”

Per Hammarlund, strategist at SEB AB in Stockholm

“The change of guards signals a change in policy. Eventually, the central bank will hike rates — tacitly approved by Erdogan — as they have done in the past when all other options have been tried. However, there are no signs that Erdogan has given up on the idea that high interest rates are a source of inflation, so the return to orthodoxy will only be temporary.”

On  Argentina seeking an Extended Fund Facility from the International Monetary Fund  to replace failed facility – Martin Guzman, Argentina Economy Minister

Argentina was looking for funds “to meet all maturities, capital plus interest,” Guzman said. “The staff of the IMF and the Argentine government considered that, in the current circumstances, this type of program is the best choice,” Guzman said.

 

Top Gainers & Losers – 10-Nov-20*

BondEvalue Gainer Losers 10 Nov

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