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US equities ended slightly higher with S&P up 0.6% led by energy, financials and industrials. US yields were higher with the 10Y and 30Y Treasury yields up 4bp and 5bp. News that former Fed Chair Janet Yellen will be nominated by President elect Joe Biden as the Treasury Secretary is being considered a positive by market participants given her history at the Fed and minimal surprises about her thinking. European equities were flat even as vaccine optimism continued. US IG CDS spreads tightened 2bp and HY spreads tightened 10.8bp. EU main CDS spreads and crossover CDS spreads tightened 0.8bp and 5.8bp. Asia ex-Japan CDS spreads were tighter by 0.2bp and Asian equities have opened mixed today.


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Mod - 1 - Newsletter-2


New Bond Issues

  • HDB S$600 mn 15yr @ 1.3%
  • Shui On Land $ tap 5.75% 2023 green final @ 5.75%

New Bond Issues 24 Nov (1)

New Bonds Pipeline

  • EU SURE 15Y bond
  • UOB EUR covered benchmark bond
  • CALG $70mn 5.9% 5Y privately placed bonds
  • IIX 4Y Women’s Livelihood bond


Rating Changes


Chinese SOEs Local Bond Defaults Stunts New Issuance; Zhongyuan $ Bonds Plummet

Bloomberg reported that Chinese companies last week cancelled the biggest amount of local bond issuance in eight months. This comes after a selloff in corporate bonds given default fears, which have increased borrowing costs. About CNY 34bn ($5.2bn) of bond sales were abandoned last week, the most since late March as per Bloomberg. They also show that the yield premium between three-year AA-rated corporate bonds and comparable government notes, implying credit risk, was at the widest level since August 4 on Friday – 3Y AA spreads at 76bp. “The extreme price volatility on the secondary market has dealt a blow to the primary market deals, making it difficult for some firms to raise funds via selling new bonds… such risks are expected to continue for a while” according to a note by Industrial Securities Co. Also, dollar bond issuances from China have been muted over the last one week with only 4 issuances totaling $1.09bn as compared to the week before that saw 20 deals totaling $8.6bn.

A surge in missed repayments in the past two weeks drove onshore delinquencies to CNY 104bn ($15.8bn) so far this year while the offshore figure is $8.1bn, 2.1x the total in 2019. December 2020 and March 2021 see CNY 30bn and CNY 32.5bn ($4.6bn and $4.9bn) of repayments due, the highest over the next one year with an average outstanding of ~CNY 12bn ($1.8bn) per month by debtors already in default.

In recent price action, Zhongyuan Asset Management’s 4.2% dollar bonds due 2022 dropped a massive 27 points to 66 cents on the dollar on Tuesday morning. Zhongyuan is a state owned company and Moody’s downgraded the company in August to Ba1 from Baa3 due to corporate governance issues post which they withdrew all ratings citing business reasons.

Zhongyuan Asset Managements Dollar Bonds Fall Sharply

Oman Taps Existing Bonds For $500 Million

Oman raised $500mn via a tap of two of its existing bonds. It raised $200mn via a tap of its 6.75% 2027s at a yield of 6.3% and $300mn via a tap of its 7.375% 2032s at a yield of 6.9%, 30bp inside initial guidance of 6.6% and 7.2% area respectively. The Government of the Sultanate of Oman acting through the Ministry of Finance is the issuer and the bonds have expected ratings of Ba3 by Moody’s and BB- by Fitch. The bonds received combined orders of over $3bn, 6x issue size. Citi, HSBC, Natixis and Standard Chartered arranged the deal. The taps were priced at a new issue premium of 6bp and 3bp over the current outstanding bonds that were issued on October 28. The original sizes of the 2027s and 2032s were $1.25bn and $750mn. The two tapped dollar bonds are slightly higher with the 6.75% 2027s up 0.10 to 102.83 and the 7.375% 2032s are up 0.35 to 104.04.

For the full story, click here


Sri Lanka Unlikely to Hit Revenue Targets, Refinancing $4 Billion Debt to be Difficult – Moody’s

Moody’s in a report said that Sri Lanka is unlikely to get targeted revenues in 2021, hit by import controls and worse than expected outlook for fiscal consolidation. This would make it more difficult to refinance $4bn of debt in 2020 according to the rating agency. “On the revenue side, the budgeted 28% increase in government revenue compared to 2020, largely stemming from robust growth in taxes on goods and services, and external trade, is unlikely to be achieved,” Moody’s said. Soft business and consumer confidence along with the above factors would see limited boost from Sri Lanka’s budget.

Sri Lanka’s debt burden is likely to increase to around 100% of GDP over 2020-21, above the Caa-rated median of 88% of GDP and only gradually decline in the coming years, according to Moody’s. They expect the deficit to remain above 8% through 2023 and if the nation’s deficit reduction is worse than the expected 8.8% forecast by Sri Lanka in 2021, it may be difficult to repay debt in 2021 they noted. With near-term default risks increasing, Sri Lanka’s dollar bond curve is inverted with short-term yields higher than long-term yields. Their 6.25% 2021s6.35% 2024s6.2% 2027s and 7.55% 2030s are yielding 20.7%, 19.4%, 15.87% and 15.4% respectively.

For the full story, click here


Indika Energy and Times China Launch Consent Solicitation on Dollar Bonds

Indonesian coal mining company Indika Energy launched a consent solicitation on Monday for its outstanding $575mn 5.875% 2024s to amend terms such that they are in line with its recently issued 2025s. Indika is offering a consent payment of $3 per $1,000 in principal to bondholders that give consent by the deadline of December 4. Indika’s 5.875% 2024s traded higher by ~0.9 points to 99.5 compared to last week’s close.

For the full story, click here

Chinese real estate developer Times China launched a consent solicitation on Tuesday morning to amend certain provisions on three of its dollar bonds – 5.75% 2022s, 6.6% 2023s and 6.75% 2023s. The amended terms would allow the issuer more flexibility to explore business opportunities and put these bonds in line with its more recent issues. The exchange filing stated, “The Proposals include amendments to, among other things, (i) the definition of “Consolidated Interest Expense” and other related definitions; (ii) the definition of “Consolidated Net Income” and other related definitions; (iii) the “Limitation on Indebtedness and Preferred Stock” covenant; and (iv) the “Limitation on Transactions with Shareholders and Affiliates” covenant.” Times is offering a consent fee of $2 per $1,000 in principal to holders that agree to the amendments by the deadline of December 7.

Times’ 5.75% 2022s, 6.6% 2023s and 6.75% 2023s are currently trading at 101, 102.04 and 103.88 respectively.

For the full story, click here


Aviva to Sell Italian Business for €400 Million

British multinational insurance company Aviva is set to sell its entire 80% share in the Italian life insurance venture Aviva Vita to its partner UBI Banca for €400mn ($476mn) subject to regulatory approval. The transaction, which is likely to complete in the first half of 2021 would see the company shore up its net asset value by £100mn ($133mn) and will allow the insurer to focus on the UK, Ireland and Canada. According to Aviva, the deal is valued at 8x profit. The newly elected CEO Ms. Blanc said, “The sale of Aviva Vita is another important step forward as we reshape our portfolio and follows the recent announcement of the majority sale of our Singaporean business.” The deal to sell its Singapore business was valued at £1.6bn ($2.13bn) in September. Aviva’s 6.125% 2036s were down 0.04 at 122 and its 4% 2055s were up 0.04 at 110.

For the full story, click here


Argentina Loosens Capital Controls For Gas Investments

Argentina’s central bank loosened restrictions on natural gas producers to buy dollars for new projects to increase production as part of a 2020-2024 incentives program. Companies can send profits abroad, including to headquarters or shareholders, after the second year of the investment. To service and pay back debts abroad, dollars can be bought as long as the financing has a tenor of no less than two years, according to the bank’s board of directors. The 2020-2024 program creates a system of auctions for pre-selling gas under long-term contracts to buyers at prices that are expected to be at a more profitable level of $3.50/MMBtu than the current $2/MMBtu. The breakeven price for Vaca Muerta is around 3.50/MMBtu, according to most estimates.

For the full story, click here


Peru Raises $4bn via Dollar Bonds; Extends Curve With $1bn 100Y Bond

South American sovereign, the Republic of Peru raised $4bn via a three-tranche dollar bond on Monday. It joined Argentina and Mexico in issuing a century (100Y) bond, extending its dollar curve. Details of the tranches are as follows:

  • $1bn 12Y bonds at a yield of 1.862%, 100bp over Treasuries and 35bp inside initial guidance of T+135bp area
  • $2bn 40Y bonds at a yield of 2.828%, 125bp over Treasuries and 35bp inside initial guidance of T+160bp area
  • $1bn 100Y bonds at a yield of 3.278%, 170bp over Treasuries and ~30bp inside initial guidance of T+ very low 200bp area

The bonds are expected to be rated A3/BBB+/BBB+, with use of proceeds towards prevention and containment of the pandemic and expenditures included in the public sector budget for FY2020 that were adversely affected by the reduced income amid the pandemic. Investors seem to have looked past the country’s political woes, which saw a change of guard twice in the last two weeks. President Martín Vizcarra was impeached on November 9, replaced by lawmaker Manuel Merino, who resigned on November 15 after mass protests. Congress later voted in 76-year old Francisco Sagasti, a former World Bank official, as interim President to guide the nation through elections due in Q2 of 2021. Shamaila Khan, head of emerging market debt strategies at AllianceBernstein said, “We think that Peru is a solid investment-grade credit despite the political volatility. The country has a strong external position and low level of indebtedness.”

Peru’s euro 2.75% bonds due 2026 traded at 111.5 while its dollar 8.75% bonds due 2033 traded at 170.1, yielding 0.49% and 2.42% respectively on the secondary markets.

For the full story, click here


Ivory Coast and Kenya Plan To Raise Funds 

Ivory Coast is looking to raise debt through the sale of the first Eurobond in sub-Saharan Africa after the onset of the pandemic. According to the country’s finance ministry, it plans to issue new bonds as well as tender $825mn of outstanding ones and has mandated BNP Paribas, JPMorgan Securities and Standard Chartered Bank for the transaction. The western Saharan country, whose currency is pegged to the euro has seen yields of its euro-denominated sovereign bonds drop in recent months. The last debt issued in the Sub-Saharan African region was from Ghana and Gabon earlier in the year, before the pandemic gripped the world. The pandemic led to the region’s first sovereign default by Zambia earlier this month. Ivory Coast is rated  Ba3/B+ (Moody’s/ Fitch). Its 6.375% bonds due 2028 were up 1.17, trading at 112.1 and its 6.125% bonds due 2033 were up 0.59, trading at 108.2.

For the full story, click here

In a related story, eastern Saharan country Kenya is also trying to raise funds. The sovereign is in talks with the IMF for budgetary support of a $2.3bn lending program, according to the nations Finance Ministry as reported by Reuters. The East African nation is seeking $725mn funding in the first half of 2021. It had secured $1bn from the World Bank in May and is also in discussion for a further loan. Kenya is rated  B2/B+/B+ (Moody’s/ S&P/ Fitch). Its 6.875% 2024s were trading at 108.6, 7.25% 2028s and 8.25% 2048s were trading at 110 and 111, up ~0.41 respectively.

For the full story, click here


Term of the Day

Quick Ratio

This ratio is defined as the ratio of quick assets to current liabilities. This is also called acid-test ratio and is a type of liquidity ratio. Quick assets are those assets that can quickly be liquidated and converted to cash. This includes cash & cash equivalents, marketable securities and accounts receivable or in other words is the value of current assets minus inventory. Bloomberg reports that after Yongcheng Coal’s default, Pingdingshan Tianan Coal held a meeting to calm investors – the company’s “quick ratio” fell to 0.6 at the end of September from 0.69 a year ago. A quick ratio above 1 is generally considered healthy.


Talking Heads

On the US central bank likely to keep rates stable until 2023 – Charles Evans, Chicago Federal Reserve Bank President

“In the past the Fed has not put enough weight on valuing getting inflation to 2% and above,” Evans said, adding that the Fed ought to get core inflation to 2.5%. “I don’t think we should get involved in trying to finetune the overshoot…I would be surprised if we were to seek to increase interest rates sooner than 2023, given the objectives that we’ve laid out.”

On markets cheering on Biden’s pick of Janet Yellen for Treasury Secretary

Barry Knapp, director research for Ironsides Macroeconomics

“To me it shows Biden is taking stuff pretty seriously and definitely not pandering to the left. She’s a very serious economic thinker, and they have some very serious problems to deal with,” said Knapp. “There’s so many outcomes that could have been worse for the banking sector. For me that was the real risk of that Treasury secretary appointment was you could get someone that was hawkish on the banking sector,” said Knapp.

“Yellen talked a lot about higher bank capital levels early in the [financial] crisis, but I think she’s a pretty benign outcome for the banking sector. When we’ve had problems with that position in the past, in both Republican and Democratic administrations, it’s been when there were people who didn’t understand economics and taxes,” Knapp said.

Chris Rupkey, chief financial economist at MUFG Union Bank
“The Federal Reserve is kind of an isolated position in a fortress down in Washington. You can spend a lot of time in your office but the Treasury Secretary is a very public position and political skills and savvy are needed, so it will be an interesting change,” he said. “She’s the one who brought the issue of income inequality to the central bank,” he said. “She does have some political skills. One of the things she started the Fed down the road to was more inclusiveness and income inequality. It started under her watch.”

On China’s AAA-rated bonds tumbling as default fears spread – Li Yunfei, credit analyst at Pacific Securities Co

“Most of the onshore bonds hit hardest this time share a common symptom: their profitability has lagged far behind their debt growth,” said Li. “Repricing of some onshore bonds, though it occurred abruptly and quickly, is a rational outcome of the recent defaults.”

On the string of defaults testing the safety net for Chinese bonds

Logan Wright, an analyst at research firm Rhodium Group

“People don’t de-risk because they think they can wait for governments to step in before they have to sell assets,” said Wright. “But now there’s going to be greater government tolerance for pain.” The recent defaults are different from those in previous years “because local governments are now being considered a source of risk themselves, rather than a source of stability”, he added. “There’s not enough credit flowing through the system as a whole . . . [local governments] are reacting to the fact they have constrained resources as well,” added Rhodium’s Mr Wright.

In a research note by Xiaoxi Zhang and Wei He, analysts at Gavekal
“The risk is that these events have permanently broken investors’ trust in the blanket support of local SOEs by local governments,” the note wrote. “It can be difficult to rebuild such trust once it has been lost.”

Michael Pettis, a finance professor at Peking University

Chinese officials “recognize there’s no lending discipline in the market”, said Pettis. “Right now is probably not the time to test what would happen if there were real, serious defaults and losses taken. But eventually they have to do it.”

On Peru joining select group of nations selling century bonds

Alberto Ramos, chief economist for Latin America at Goldman Sachs

“The political backdrop is challenging,” said Ramos. “On the other hand, we are living in a world with abundant liquidity.” “It generates volatility in asset prices and adds uncertainty to the outlook,” he said. “It could eventually down the road compromise what are now relatively solid fundamentals.”


Top Gainers & Losers – 24-Nov-20* 

BondEvalue Gainer Losers 24 Nov


Correction: Errata to yesterday’s “The Week That Was” table of currencies. The correct values for USDMXN, USDBRL and USDZAR are 20.09, 5.38 and 15.4. The error is regretted.

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