US Benchmark & Global Indices 27 Nov

US markets were closed on account of Thanksgiving while European equities were flat. German 10Y Bund yields fell 3bp to -0.59% with dovish messaging from ECB Chief Economist Philip Lane and the minutes of their October meeting leading to some expectations of stimulus in their next meeting in December. EU main and crossover CDS spreads tightened by 0.1bp and 1bp while Asia ex-Japan CDS spreads were tighter 0.3bp. Asian equities have opened mixed today.

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New Bond Issues

New Bond Issues 27 Nov

Dexin China raised $200mn via a 2Y bond at a yield of 11.75%, 27.5bp inside initial guidance of 12.125% area. The senior notes have expected ratings of B3/B- and received orders over $1.35bn, 6.75x issue size. Asian investors took 97% of the bonds and Europe and others 3%. Asset managers, fund managers and hedge funds received a combined 83%, private banks and corporates 15%, and banks and financial institutions 2%. Proceeds will be used for offshore debt repayment. The Hong Kong-listed Chinese real estate company has also launched a tender offer to purchase up to $90mn of its outstanding $300mn 12.875% senior notes due 2021 at a purchase price of $1,022.5 plus accrued and unpaid interest for each $1,000 in principal amount. The deadline for the tender offer is on December 4.

Sunac raised $320mn via a tap of their 6.65% 2024s and 7% 2025s. It raised $120mn via the 2024s at yield of 6.8%, 40bp inside initial guidance of 7.2%. It also raised $200mn via their 2025s at a yield of 7%, 50bp inside initial guidance of 7.5% area. For the 2024s, investors from Asia took 85% of the notes and Europe 15% while for the 2025s, Asian investors received 89% and Europe 11%. The bonds have expected ratings of B1/B+/BB and received combined orders over $2.8bn, 8.75x issue size. Proceeds will be used to refinance offshore debt, including a concurrent tender offer to purchase part of its outstanding $561.4mn 8.375% bonds due 2021.


Rating Changes


Tata Steel Targets Selling Dutch Business For $7 Billion To SSAB

Indian steelmaker Tata Steel targets to raise $7bn-$8bn from the sale of its profitable Netherlands business IJmuiden Steelworks to Swedish steel giant SSAB according to two sources. The sources said that due diligence is reaching an advanced stage and the financial offer is expected by January. While the sources cited a valuation of $7bn-$8bn, it is not clear whether SSAB will want a discounted purchase because of the prevalent undesirable market condition in Europe. The IJmuiden site is the main hub of Tata Steel in Netherlands and produces around 7.3mn tons of strip steel a year across customers in the automotive, engineering, packaging and construction sectors.

The company has also initiated the process to separate Tata Steel Netherlands and Tata Steel UK (TSUK) and will pursue separate strategic paths for both the businesses in the future. Tata steel had said that the pandemic had hit steel demand, which is expected to adversely impact business of its UK subsidiary that is held through Tata Steel Europe (TSE). “TSE, including TSUK, continues to implement various measures aimed at conserving cash, including but not limited to deferral of capital expenditures, cost reductions, use of non-recourse securitization programmes, seeking Government-backed funding etc.” the company said. The SPV of Tata Steel, Abja’s dollar bonds were flat with its 5.95% 2024s at 106.75, yielding 3.95% and its 5.45% 2028s at 102.51, yielding 5.03%.

For the full story, click here


Tata Motors Raises $300mn Via 3.5NC2.5 Bond at 5.5%

TML Holdings raised $300mn via a 3.5Y non-call 2.5Y bond (3.5NC2.5) at a yield of 5.5%, 5bp inside initial guidance of 6% area. The senior unsecured notes have an expected rating of B by S&P and received orders over $1.7bn, ~5.7x issue size. Asset managers and fund managers took 90% and the rest went to banks and private banks. Asia bought 86% and EMEA 14%. The bonds have a Letter of Comfort by Tata Motors.

Singapore-incorporated TML Holdings is the holding company for Tata Motors’ overseas businesses, including Jaguar Land Rover and is a wholly-owned subsidiary of Tata Motors. Proceeds will be used to refinance the issuer’s $300mn 5.75% senior notes due May 7, 2021, to meet expenses related to the issue of the new notes and for general corporate purposes. There is a change of control put at 101 if the parent Tata Motors, ceases to control the issuer or hold directly or indirectly less than 51% of the issuer’s voting stock. The put option can also occur if TML Holdings ceases to control Jaguar Land Rover, or if it holds directly or indirectly less than 51% of Jaguar Land Rover’s voting stock.

Tata Motors’ 5.875% dollar bonds due 2025 were up 0.11 to 103.3, yielding 5.04% and their 5.75% bonds due 2024 were flat at 102.5, yielding 5.03%.


ECB’s Chief Economist Sounds Dovish; Portugal 10Y Yields Go Negative

The European Central Bank’s (ECB) Chief Economist Philip Lane in a speech yesterday sounded a tone of caution, considered ‘dovish’ by market participants. He stated, “The recovery path will still be long and fraught with risks. Economic developments are likely to be unsteady and uneven across countries and sectors for some time to come and remain subject to elevated uncertainty… Monetary policy continues to have a clear role in ensuring the preservation of favorable financial conditions. This will remain an essential priority even in the post-pandemic phase, given that the macroeconomic hit from the pandemic is likely to persist even after medical solutions have been rolled out”. He also added that tolerating a longer phase of even lower inflation than originally envisaged would be costly and risky.

In related European news, Portugal’s 10Y yield fell below 0% for the first time. Expectations are that the ECB may further expand its €1.35tn ($1.6tn) emergency bond-buying programme at next month’s policy meeting. The ECB’s minutes released yesterday also showed that risks surrounding the euro area growth outlook were titled to the downside. “There’s no point trying to fight this move,” said Ludovic Colin, a fund manager at Vontobel Asset Management who holds Portuguese government bonds. The market assumes this debt will disappear into the ECB’s coffers for a long time to come.” “Investors aren’t dividing up the eurozone into core and periphery like they did a few years ago,” said Pooja Kumra, rates strategist at TD Securities. Portugal’s dollar bonds were also slightly higher with its 5.125% 2024s up 0.1 to 116.75, yielding 0.73%.

For the ECB Chief Economist’s speech click here. For the full story on Portugal yields, click here.


Vedanta Rumored to Seek Extension from Bondholders

Metals and mining company Vedanta Resources Ltd. (VRL) has reached out to bondholders to seek a maturity extension on its dollar bonds, as reported by Bloomberg. According to people familiar with the matter, Vedanta started to sound out investors to discuss an extension after its failed attempt at delisting its India unit Vedanta Ltd. While the company had earlier declined to comment on this, a spokesperson denied this after Bloomberg published the story on Thursday evening stating, “We would like to clarify that Vedanta Resources is not in talks with any bondholder for debt tenure extension.” While the company’s 6.125% bonds due 2024 fell ~1.4 points to 62.4 cents on the dollar on the news, its other dollar bonds traded unchanged to slightly higher.

After the failed delisting in late October, Moody’s placed VRL’s B1 rating on review for downgrade. Kaustubh Chaubal, a Moody’s Vice President and Senior Credit Officer said, “Without operations of its own, VRL – as the holding company – needs to refinance debt maturities at a time of tight capital market liquidity, putting undue pressure on key subsidiaries to upstream cash.” He added, “Governance risk also remains high, with share pledges, persistently weak liquidity and large imminent refinancing needs reflecting an aggressive financial strategy and high risk appetite.” As per its annual report published in early October, the company’s total debt stands at $15.1bn while its cash position stands at $5.1bn. The chunk (45%) of its debt repayments are due in the next two years with $3.56bn due in 2021 and $3.25bn due in 2022.

Vedantas Upcoming Debt Maturities

S&P affirmed the company’s B- rating in late October with a negative outlook citing “The negative outlook indicates that we could downgrade Vedanta Resources if the company is unable to lower refinancing risk by improving funding access and service its debt sustainably.”

For the full story, click here


CIFI Holdings Upgraded to Ba2 by Moody’s

Chinese real estate developer CIFI Holdings (Group) Co. Ltd. was upgraded to Ba2 from Ba3 by Moody’s on Thursday. Cedric Lai, a Moody’s Vice President and Senior Analyst said, “The upgrade reflects our expectation that CIFI’s credit metrics will improve over the next 12-18 months, supported by strong revenue growth and controlled debt growth.” CIFI reported a growth of 12% in contracted sales to CNY 174.4bn ($26.5bn) in the 10 months ending October despite the negative impact of the pandemic. This follows a 32% growth in the previous full year to CNY 200.6bn ($30.5bn). Lai added, “The upgrade also reflects CIFI’s more geographically diversified operations and continued strong access to funding, which will enable the company to deliver solid business growth over the next 12-18 months.” Moody’s expects CIFI’s revenue-to-adjusted debt to improve to 65-75% over the next 12-18 months from 46% for the year ended June 2020. It also expects CIFI’s interest coverage (EBIT/Interest) to improve to 3.1-3.6x from 2.5x over the same period.

CIFI’s 5.5% bonds due 2023 inched higher by 0.3 points to 103.1, its 6.55% bonds due 2024 rose by 0.4 points to 106.25 while its 5.375% perp rose by 0.6 points to 100.9 compared to Wednesday’s close.

For the full story, click here


Singapore Press Holdings to Boost Income Through Diversification

Singapore Press Holdings (SPH) is eying to boost its income by tapping its property segments. The company revealed in its annual general meeting that it aims to grow its retail and purpose-built student accommodation (PBSA) businesses as well as aged care while focusing on digitalization of its media business. SPH saw a 29% YoY increase in its net operating income despite pandemic disruptions this year in its PBSA segment and is on track to achieve its targets for FY2021 as it has already achieved 88% of target revenues as of Nov 20. Updates from its AGM:

  • SPH witnessed a 52.5% YoY growth in digital circulation due to the pandemic as well as 2020 general election news
  • Investment in PBSA saw a profit of ~S$20mn ($15mn) since December 2018.
  • The group made several divestments that resulted in a gain of ~S$293mn ($219mn) and included S$149.7mn ($112mn) through divestment of classifieds firm to Norway’s Telenor in FY2017 and S$70mn ($52mn) through divestments from the Treasury & Investment portfolio in FY2017.
  • Its projects were running smoothly as it had already sold 60% of the units in a residential project and its Orange Valley aged care assets and the Japan assets remained stable

According to the group, “Since diversifying into the defensive cash-yielding PBSA asset class, SPH is on track to become a sizable PBSA owner-operator across 28 assets in the UK and Germany worth over S$1.4bn ($1bn)” adding that, “SPH has scaled up with two distinct brands, Capitol Students and Student Castle, to capture both the domestic and international student demand”.

Its 4% SGD perp traded at 98.7 cents on the dollar, up 0.01 while its 4.5% SGD perp traded at 100.5 , up 0.03.

For the full story, click here


Emirates NBD REIT’s NAV Falls to $198 Million from $230 Million

Emirates NBD’s (ENBD) REIT, the Shariah-compliant REIT managed by Emirates NBD Asset Management, announced that its net asset value (Term of the day, explained below) as at September 30 was at $198mn ($0.79/share), decreasing from $230mn from the six-month period ending March 31. This was primarily due to valuation pressure as the value of its property portfolio has been adjusted down to $377mn from $410mn in March. The valuation downgrade occurred on the back of soft real estate market conditions and lower rental income due to the pandemic. The lower blended occupancy rate (now at 76% from 82% in March) reflects softer occupancy at the REIT’s residential assets. The REIT’s Loan-to-Value (LTV) ratio has increased to 49.6% due to the valuation write-down in the property portfolio and the management is in contact with lenders to ensure all covenants are maintained. ENBD Bank PJSC is the parent company of ENBD Asset Management. The bank’s dollar bonds were slightly lower – 6.125% perps down 0.23 to 106.6, yielding 4.73%.

For the full story, click here

Term of the Day

Net Asset Value

Net Asset Value (NAV) is the value of a fund’s assets minus its liabilities per unit at a point in time. It is calculated as the (Value of Assets-Value of Liabilities)/number of units outstanding. NAV is often associated with mutual funds and ETFs, and helps an investor track the fund’s performance. NAVs should not be confused with the market price for example in an ETF. The latter is just the price at which shares in the fund can be bought or sold determined by demand and supply while the former is more akin to book value.


Talking Heads

On the increased medium-term vulnerabilities for corporates and banks – Luis de Guindos, Vice-President of the ECB

“Bank profitability is expected to remain weak. Provisions have increased but look optimistic in some cases, while guarantees and moratoria may have lengthened the time it takes for weak economic performance to translate into loan losses,” said de Guindos. “Government support schemes are essential currently but should remain targeted towards pandemic-related economic support and avoid giving rise to debt sustainability concerns in the medium term,” he added.

On the suggestion for ECB to cancelling pandemic debt

Riccardo Fraccaro, Italy cabinet undersecretary and closest aide to Prime Minister Giuseppe Conte

“Monetary policy must support member states’ expansionary fiscal policies in every possible way,” Fraccaro  said. That could include “canceling sovereign bonds bought during the pandemic or perpetually extending their maturity.” “For the central bank, it’s one thing to be independent from politicians, it’s another to not understand where the world is going,” he said. “The ECB should help countries relaunch their economies.” “Italy could be exposed to speculative investments without ECB purchases,” Fraccaro said. “The central bank should always guarantee financial stability.” “The ECB does not have an issue with debt — it can print as much money as it wants,” Fraccaro said. “It can continue to buy sovereign bonds and allow member states to invest, protecting them from the market.”

Bruno Le Maire, France finance minister

“A debt is paid back, that is the principle of debt,” Le Maire said. “If we are able to easily raise debt on markets today at very low rates, it is thanks to the monetary policy of the ECB.”

On ECB gearing up to inject more monetary stimulus as financial conditions tighten

In the minutes of the ECB rate-setting meeting

“It could not be excluded that the euro area, or at least some countries, would experience a double-dip recession,” they warned.

Gabriel Makhlouf, head of Ireland’s central bank and ECB council member

“If you had asked me a few weeks ago, I would have said the outlook had gotten slightly worse than perhaps when we discussed it in September,” Makhlouf said. “On the other hand, we will have to evaluate the emergence of the vaccine and what that might mean for activity and recovery.”

Philip Lane, chief economist at the ECB

Mr Lane said that while the recent vaccine news was “very welcome and reduces the likelihood of the most severe scenarios”, he believed that “the current surge in infections and the reimposition of containment measures serve as warning signals that the recovery path will still be long and fraught with risks”.

On the fall in China’s short-term rates as rumours swirl of government support – Ming Ming, head of fixed income research at Citic Securities

“Increasing the total amount of funds in the exchange repo market helped strengthen targeted financial support for non-bank institutions,” and also helped to resolve a liquidity shortage, Ming said

On Gulf bonds likely to set new record in 2021 amid budget squeeze

Khalid Rashid, head of debt capital markets for the Middle East and North Africa at Deutsche Bank

“I think overall, the market will grow. We can easily add $7-10 billion more to 2020 total issuance,” said Rashid.

Hasnain Malik, head of equity strategy at Tellimer

Malik said he expects more consolidation among government-related enterprises, removing duplicated cost, and “raising of debt for the stronger business models that result from this consolidation is likely.”

On no easy way out of bank dividend bans for Europe

Lorenzo Bini Smaghi, chairman of Societe Generale SA and former European Central Bank executive board member

“The issue is how to make the banking system investable,” Smaghi said. “If there is a real crisis and you need private capital, then there will not be sufficient capital in the system to support the economy. Where will the capital come from? It will have to come from taxpayers.”

Romain Boscher, global chief investment officer for equities at Fidelity International

“Extending the ban isn’t sustainable, it’s a lockdown applied to finance,” said Boscher. “Asking shareholders to bear the risk without a dividend is an implicit nationalization.” “Capping dividends would also be very unfair to those banks with rock solid capital levels,” said Boscher.

Kerstin af Jochnick, ECB Supervisory Board member

“We are now going through another difficult phase of the crisis with more infections and related public interventions increasing. But at the same time I think there are also more positive signals now on the vaccine and how our economies will be able to recover,” she said. “The situation is rather difficult to really assess and what will be the effect on banks’ balance sheets.”

On Spanish banks embarking on hasty round of consolidation

Francisco Riquel, head of equity research at Alantra Equity Research

“Even before the crisis, European banks were not profitable, struggling with negative interest rates,” said  Riquel.

Stuart Graham, founder of Autonomous Research

“Spain is consolidated and pretty much done,” said Graham. “The interesting thing is that there are now three big Spanish banks and each will have to look outside Spain for further expansion.”

Javier Pano, chief financial officer of CaixaBank

“We are all in a similar situation,” Pano said. “Negative interest rates were the most important consideration; consolidation is one way to make a bank’s profitability sufficiently attractive to shareholders, and other entities could arrive at the same solution as us.”

Xavier Vives, professor of Economics and Finance at IESE Business School

“Overbanking is a legacy of the bubble that preceded the financial crisis,” said Vives. “And naturally as the economic perspective in Spain is worse, there is more pressure here to deal with it.”


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