SOVEREIGN DEBT RESTRUCTURING | MASTERCLASS

A deep dive masterclass on sovereign debt restructuring, to be conducted virtually by Asian high yield bond expert Florian Schmidt.

30 June 2022 (Thu), 5pm Singapore/HK time

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US markets ended lower with the S&P down 0.5% and Nasdaq down 0.2% as most sectors were in the red, led by utilities down 2%. US Retail Sales for October climbed 0.3% vs 0.5% estimated whereas core retail sales were up 0.2% vs 0.6% estimated. With weaker momentum in consumer spending, which accounts for ~70% of the US economy, some market participants see this as a slowing sign of the economy even before the November restrictions. US 10Y Treasury and German Bund yields slipped 5bp and 2bp. US IG and HY CDS spreads widened 0.6bp and 2.1bp respectively. Europe main and crossover spreads also widened marginally by 0.3bp and 2bp respectively. Asia ex-Japan CDS spreads are slightly tighter by 0.4bp while Asian equities have started slightly higher today, up ~0.2%.

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New Bond Issues

  • China EUR 5Y/10Y/15Y at MS+45/75/90bp
  • AC Energy $ Green PerpNC5 at 5.4% area
  • China Gezhouba Group $300mn PerpNC5 at 4.4% area

New Bond Issues 18 Nov (1)

ANZ raised $1.5bn via a 15Y non-call 10Y (15NC10) Tier 2 bond at a yield of 2.57%, 30bp inside initial guidance of T+200bp area. The bonds have expected Baa1/BBB+/A- ratings.

Aviva Singlife raised S$500mn ($372mn) via a 10.25Y non-call 5.25Y (10.25NC5.25) Tier 2 bond at a yield of 3.375%, 37.5bp inside initial guidance of 3.75% area. The bonds have expected ratings of Baa3/BBB- (Moody’s/Fitch). A mandatory redemption will occur at 101 if the acquisition of Aviva Singapore and Aviva Asia is not completed within three months of the bonds’ issue date. The first call date is February 24, 2026. Proceeds will be used to fund acquisitions and meet capital adequacy requirements.

National Bank of Kuwait raised $300mn via a 10Y non-call 5Y (10NC5) at a yield of 2.5%, 37.5bp inside initial guidance of 2.875% area. NBK Tier 2, an SPV is the issuer and National Bank of Kuwait is guarantor. The subordinated notes are rated Baa1 by Moody’s.

Central China Real Estate raised $300mn via a 3.5Y non-call 2Y (3.5NC2) at 7.875%, 27.5bp inside initial guidance of 8.15% area. The bonds, rated BB-, received orders over $1bn, ~3.3x issue size.  Asia took 92% of the bonds and Europe 8%. Financial institutions received 44%, asset managers and fund managers 30%, private banks 22% and corporates 4%. Proceeds will be used for debt refinancing.

 

New Bonds Pipeline

  • Kuwait International Bank $ Tier 2 10Y non-call 5Y sukuk
  • Changxing Urban Construction Investment $ Green Bond
  • CALG $70mn 5.9% 5Y privately placed bonds
  • IIX 4Y Women’s Livelihood bond

 

Rating Changes

 

Aramco Raises $8 Billion via Jumbo Multi-Trancher

Saudi Aramco raised $8bn via a multi-tranche dollar bond issuance. It raised:

Aramco (2)

Aramco was expected to raise up to $6bn according to sources before the deal was launched. The 50Y tranche is the longest-dated international bond by a Saudi Arabian issuer, as per Reuters. The senior unsecured notes have expected ratings of A1/A (Moody’s/Fitch), in line with the issuer and received combined orders of over $48.1bn, ~6x issue size. Reuters reported that the demand for the new bond was less than half of what it drew for its debut dollar bond issue last year, when it raised $12bn. Aramco, which reported a 45% fall in Q3 profits, requires the funds to pay dividends of $37.5bn in 2H2020 and fund its $69.1bn purchase of a 70% stake in Saudi Basic Industries (SABIC).  “I think the shorter-end is offering a bit more value than the longer-dated bonds to where the existing bonds are trading,” said Max Wolman, portfolio manager at Aberdeen Asset Management.  Aramco’s older 3.5% bonds due 20294.25% bonds due 2039 and 4.375% bonds due 2049 are currently trading at 111.06, 116.63 and 121.8, yielding 2.06%, 3.06% and 3.2% respectively on the secondary markets.

For the full story, click here

 

Mexico Raises $3.63 Billion via Dollar Bonds to Refinance Debt

Mexico raised $3.63bn to redeem existing bonds in a two-part bond issuance:

  • $1.83bn long 10Y bonds due 2031 at a yield of 2.659%, 175bp over Treasuries and over 25bp inside initial guidance of T+ low 200bp
  • $1.8bn long 40Y bonds due 2061 at a yield of 3.771%, 210bp over Treasuries and 50bp inside initial guidance of T+ mid 200bp

The sovereign received combined final orders of $16bn, 4.4x issue size. Mexico will use the proceeds to redeem its outstanding 3.625% dollar bonds due 2022, 1.875% euro bonds due 2022 and to finance a buyback offer of 11 bond series (maturities ranging 2023-2050), following government statements. Investors with bonds maturing between 2023 and 2030 could exchange these for the new 10-year bond, while bonds maturing between 2046 and 2050 could be switched for the new 40-year bonds. The expected rating is BBB-. Mexico plans to buyback two bonds maturing in 2022 to reduce amortization of foreign market debt

For the full storyclick here

 

Italy Raises $3 Billion via Dollar Bond

Italy raised $3bn via a long 5Y dollar bond at a yield of 1.322%, or 85bp over Mid-Swaps (MS+85bp) and 15bp inside initial guidance of MS+100bp. The bonds received demand of ~$4.5bn according to a lead manager, 1.5x issue size. The bonds have expected ratings of Baa3/BBB/BBB- and mature on February 17, 2026. Italy last issued dollar bonds in October 2019, when it raised $7bn via 5Y, 10Y and 30Y bonds, its first dollar bond issuance since 2010. “It looks like Italy wants to have a yield curve in dollars. Adding a five-year… looks to be part of that strategy,” said Andy Cossor, a strategist at DZ Bank in Frankfurt. The sovereign’s yields have hit lows of late as the risk-off sentiment has withered – the BTP-Bund spread is near lows of 117bp falling from 233bp in April this year. Italy’s 6.875% dollar bonds due 2023 were up 0.16 to 116.7, yielding 0.93% on secondary markets.

 

Amundi & BNP Eyeing SocGen’s €150 Billion Fund Management Business

European asset manager Amundi and french lender BNP Paribas are among a group of bidders that are looking to acquire Societe Generale’s fund management business, according to three sources reported by Reuters. The business, called Lyxor, is Europe’s third largest provider of exchange traded funds (ETFs) with €150bn ($178bn) of assets under management. Other majors that have expressed an interest in Lyxor include JP Morgan, State Street Corp and Deutsche Bank’s asset management arm DWS, two of the sources said. The size of the transaction is expected to in the €500-€700mn ($593-830mn) range, although the final price will be contingent on the specific assets that will be carved out from the bank. “Societe Generale is aware of Amundi’s interest but they’re looking to run a narrow auction to secure the highest price,” one of the sources said.

Socgen’s 6.75% Perps traded up by 0.5 points to 110.5 while BNP’s 6.625% perpetuals traded up by 0.3 points to 109 on the secondary markets.

For the full story, click here

 

Turkey Dollar Bond Volumes Rise; CBRT Meeting Tomorrow

Trading volumes of dollar-denominated Turkey’s sovereign bonds have risen to their highest levels in almost two years – average daily trading volumes for November reached $489.75mn, the highest since at least the start of 2019, showed MarketAxess data. This surge in volumes comes ahead of Turkey’s Central Bank CBRT’s monetary policy meeting tomorrow. Turkey has been making the headlines over the last couple of weeks with the appointment of a new central bank governor and finance minister, and President Erdogan’s positive comments to support markets. The Lira rallied almost 10% on the back of these developments.

“Many market participants are viewing the recent changes of leadership of the Ministry of Finance and CBRT as positive but we are yet to see whether this is a broader strategy to return to more conventional and transparent macroeconomic policies over the medium term as opposed to just a short-term change,” said Tatiana Lysenko, global emerging markets economist at S&P Global Ratings adding that they expect the CBRT to hike rates by 4% tomorrow.

Turkish dollar bonds have risen considerably over this month – 5.125% 2022s up 2% MTD to 101.3, the 6.125% 2028s up 10% MTD to 102.8 and the 6.75% 2040s up 14% MTD to 101.9.

Turkey $ Bonds

For the full story, click here

 

Sri Lanka Dollar Bonds Trend Higher After The Budget Presentation

Sri Lanka’s dollar bonds inched up after the government presented the annual budget on Tuesday. In the budget speech, the country’s Prime Minister Mahinda Rajapaksa, who also holds the portfolio of the Finance Minister, said that “the government’s main strategy is to ensure the economic freedom of the people with a production economy facilitated by a structural change within a framework of market economy.” The government is planning on reducing the revenue-expenditure gap annually from 9% to 4% and aims to reduce the public debt to 70% of GDP from the existing 90%. While the government’s projected economic growth rate for 2021 is 5.5%, the budget deficit is targeted to be 4% by 2025 based on increased tax revenues.

Sri Lanka Bonds Inch Up After Budget Speech

Sri Lanka’s bonds were trading on a positive note after the government vowed to slash the fiscal deficit. Its 5.875% bonds due 2022 were trading up 1.14 at 72.4 cents on the dollar. Its 6.125% 2025s were up 1.03 at 65.5 and its 7.85% 2029s were up 0.68 at 63.6 cents on the dollar. The country’s bonds had taken a beating since September after a Moody’s downgrade due to tight external financing conditions in the wake of the pandemic and over the 20th constitutional amendment, which increased the scope of powers to the President.

For the full story, click here

 

Petrobras To Sell Four Offshore Sites in The Campos Basin

Brazilian oil company Petrobras is selling a 50% stake in the Marlim Cluster (Marlim, Marlim Leste, Marlim Sul and Voador) located in the deepwaters in the Campos Basin, and will retain the remaining 50% stake in the concessions. Petrobras only allows for oil and gas companies with a minimum market cap of $500mn and financial institutions with a minimum of $2.5bn in assets under management to participate in the bidding process. Petrobras has a market cap of $58.98bn and a rating of BB-. Interest in the concession can be expressed until December 11. Scotiabank is the oil company’s financial adviser on the sale.

For full story, click here

 

Term of the Day

Gender Bonds

Gender Bonds are bonds that are broadly issued to support the advancement, empowerment and equality of women. Like other themed bonds, they can be issued as senior unsecured notes referencing the issuer’s balance sheet where proceeds are for specific use on eligible ‘gender’ activities. Most bonds issued with a ‘gender’ label have so far relied on the ICMA’s Social Bond Principles, the UN’s Sustainable Development Goals or the UN Women’s Empowerment Principles as reference standards. Gender related areas include addressing financial inclusion of women, female entrepreneurship in emerging markets, access to leadership positions and gender-positive corporate policies. Turkey’s Garanti Bank was the first private sector bank in the world to launch a gender bond dedicated to financing women-owned small businesses in emerging markets in April 2019.

 

Talking Heads

On fear of Biden chill adding to motives for Eurobond flurry

Sergey Dergachev, a money manager at Union Investment Privatfonds GmbH

“We are seeing issuance from regions which could be more under stress from a potential Biden presidency,” said Dergachev. Issuers are looking to place deals while “funding costs and relative volatility are still low,” he said.

In a report by Moody’s Investors Service analysts led by London-based senior vice president Rahul Ghosh

Higher-quality emerging-market issuers, particularly in Asia, “will navigate 2021 fairly well, supported by strong economic or industry positions and healthy access to capital,” the report said. Governments and companies with weaker credit profiles “will endure another year of liquidity stress and, potentially, deteriorating creditworthiness,” he said.

On calls for dividends to remain on hold –  Carolyn Rogers, secretary-general of the Basel committee of regulators

“In a crisis, there is a premium on flexibility. Holding back on discretionary distribution of capital I think makes sense,” she said. “The capital does not disappear. If the hit isn’t as big as we think, they [banks] can still pay it out later.”

“We are all in this suspended reality. As government support programmes expire some businesses and households are going to fare better than others, there will be losses and the scale is unclear at this stage,” she added. “There is a long way to go.”

“Banks are not pulling back credit like they did [during the financial crisis] to save themselves at the expense of the broad economy,” she noted. “That’s a good thing, we can give them a gold star and a pat on the back, but we should also remember this is part of their job. Banks are supposed . . . to absorb and not amplify shocks and downturns to the economy.” “Nor is this benevolence or charity. This is the business they are in and for most of them it makes them a lot of money,” she added. “It is important they are well capitalised and not over-leveraged.”

On China’s credit jitters deepening a selloff in government bonds

Qi Sheng, a fixed-income analyst at Founder Securities Co.

“The yield will keep rising and it will be very hard for us to see a turn toward a lower rate this year,” said Qi. “The demand for government bonds is quite weak, as corporate defaults are forcing financial institutions to hoard cash to deal with their clients’ redemptions of funds.”

Tommy Xie, an economist at Overseas Chinese Banking Corp

“This confusion about the monetary policy stance may continue to weigh on market sentiment” even though the current sovereign bond yield is attractive, said Xie.

On fall in treasury yields after disappointing retail sales data – Chris Rupkey, chief financial economist at MUFG Union Bank

“Retail sales in October are already showing signs of slowing in a second major pandemic lock down even before the surge in deadly virus cases made many states issue a wave of new restrictions in the first weeks of November,” Rupkey said.

On investors betting that vaccine-led recovery will lift emerging markets – Andreas Kolbe, a strategist with Barclays

“The vaccine announcements provided another boost for emerging market risk sentiment,” said  Kolbe. “These results have likely removed some pessimism about the medium-term trajectory of the virus and its consequences on the global economy.” “We expect emerging market local markets to rally across the quality spectrum,” he said. “We are starting to see some extreme measures of sentiment, as cash levels are low and equity allocation is high,” he said.

On the surge in Turkey dollar bond trading before central bank meeting – Tatiana Lysenko, global emerging markets economist at S&P Global Ratings

“Many market participants are viewing the recent changes of leadership of the Ministry of Finance and CBRT (central bank) as positive but we are yet to see whether this is a broader strategy to return to more conventional and transparent macroeconomic policies over the medium term as opposed to just a short-term change,” said Lysenko . “But we would agree that there are already some positive signs.” “Markets want something more transparent, more clear signal that we’re raising our key rate, that’s our main instrument,” Lysenko said.

On China SOEs nervousness derailing $2.4bn in planned bond sales

Sean Ding at Plenum, a Beijing-based consultancy

“Local SOEs account for over half of outstanding corporate bonds in China,” said Ding. “A continued sell-off would lead to a complete halt of bond issuance.”

In a note by Luan Xiaochen and Ying Li, S&P analysts.

“This incident does raise concern for investors who hold hybrid bonds of small and midsized banks with inadequate capital bases and high bad debt ratios, since government support…may not be available for hybrid instruments issued by these banks,” they wrote.

 

Top Gainers & Losers – 18-Nov-20* 

BondEvalue Gainer Losers 18 Nov

 

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