Corporate Debt Restructuring Masterclass

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

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S&P closed at a record high of 3,585 on Friday led by energy, industrials and the financial sectors. 10Y US Treasury yields were up 1bp to 0.88% with slight risk-on sentiment. On the macro data front, this week is relatively light but sees US Retail Sales, China’s Fixed Asset Investment and Industrial Production numbers. US IG CDS spreads tightened 0.5bp and HY spreads were 8bp tighter while Europe’s main and crossover CDS spreads were relatively flat and 1bp lower respectively. Asia ex-Japan CDS spreads were 1.4bp wider and Asian equities have started the week higher ~1% today.

 

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New Bond Issues

  • Jingrui Holdings $ 2.25Y at 14.625% area

New Bond Issues 16 Nov

 

New Bonds Pipeline

  • China Gezhouba Group $ subordinated perpetual bond
  • CALG $70mn 5.9% 5Y privately placed bonds
  • IIX 4Y Women’s Livelihood bond
  • Aviva Singlife $/S$ Tier 2 bond

 

Rating Changes

Moody’s upgrades Croatia’s ratings to Ba1, changes outlook to stable from positive

Moody’s affirms Land Bank of Taiwan’s deposit ratings at Aa3/P-1 and upgrades its BCA to baa2 from baa3; outlook stable

Tenneco Inc. Outook Revised To Positive From Negative By S&P On Improving Demand And Performance; New Secured Debt Rated ‘B’

China-Based CAR Inc. ‘CCC’ Ratings Affirmed And Removed From CreditWatch By S&P; Outlook Positive

Moody’s assigns B1(hyb) rating to Permanent TSB Group Holdings plc’s high-trigger AT1 capital securities

Moody’s assigns A3 IFSRs to Aviva Singapore and Singlife and Baa3 rating to the holdco’s proposed subordinated notes

 

The Week That Was

Primary markets were active last week across the board as election related volatility dissipated. US saw $54.6bn worth of new bond deals with Verizon’s $12bn jumbo issuance as the highlight being the fourth largest dollar issuance this year. Issuance were lifted by investment grade rated issuers at $43.8bn while issuance from high yield names were similar to the week before the election at $10.8bn. LatAm issuance stood at $1.28bn, the highest in over a month. European G3 issuance totaled $27.5bn topping last month’s high of $22bn – both led by SURE bonds. Gulf dollar bond issuances were muted at $1.2bn with DIB’s $1bn AT1 sukuk accounting for the key chunk, pricing tight at 62.5bp inside initial guidance. Asian markets saw 20 new bond deals totaling $8.6bn. Prominent names in Asia included Kaisa GroupChina Longyuan amongst others with BOCOM’s $2.8bn AT1 being the largest deal in the region. Asian Dollar bond issuances have already touched $323bn YTD just short of the all-time high of $326bn in 2019 as per Bloomberg.

BEV Weekly Top Half 16 Nov-1BEV Weekly Bottom Half 16 Nov (3)

 

Evergrande’s Trust Financing Dips With Regulatory Intervention

China Evergrande Group has seen a sharp drop in its main source of non-bank financing over the last quarter – trust-based financing. Trust loans are funded by capital pools from wealthy investors to invest in property projects. Trust financing constituted ~41% of its total CNY 799.8bn ($121 billion) debt as at end-2019. Overall trust fundraising by developers slid in October after policy makers increased efforts, but not at the same steep pace as Evergrande, according to Bloomberg. Trust issuances by Evergrande hit a peak of CNY 15.7bn ($2bn) in June alone and over the last quarter saw only a combined CNY 7bn ($1bn) raised, data from Bloomberg shows. As regulators have become stricter on trust loans the market has seen an increase in defaults. With that, regulators have stepped in to limit speculative housing projects.

Evergrande has been trying to raise its cash reserves through asset/stake sales and by getting approval to list its property management arm in Hong Kong. “Evergrande’s dependence on trust loans has been declining, although it could go back up if they’re not able to access offshore funding given the high cost,” said a credit analyst at Bloomberg. Evergrande’s dollar 6.25% 2021s are down 0.06 to 94.54 while their 12% 2024s are down 0.19 to 85.31.

For the full story, click here

 

Genting Reports $41 Million Profit for Q3

Genting Singapore announced in its Q3 earnings release that it continued to experience weak demand, which led to a 66% drop YoY in profit for the quarter. However, it also stated that its Resorts World Sentosa (RWS) had started its operations at Universal Studios Singapore and S.E.A. Aquarium from July 1 this year after Singapore entered phase two of the gradual reopening. Singapore Integrated Resorts has two major revenue heads. Its gaming unit reported revenues of ~S$212.9mn ($158mn), down 41% from ~S$360.8mn ($268mn) in the corresponding period in 2019 while its non-gaming unit reported a revenue of S$59.9mn ($45mn), down 74% from S$234.6mn ($174mn) in Q3 last year. While the company continued to suffer huge top line decline, it managed a net profit of ~S$54.5mn ($41mn) after taxes, down from S$158.9mn ($118mn) in the corresponding quarter last year. The positive net profit in Q3 is significant as the company had suffered a loss of ~S$163.3mn ($121mn) in Q2 with the revenues dropping to a mere ~$41.3mn ($31mn) in the quarter against a revenue of $636mn in the corresponding quarter in 2019.

“COVID-19 has caused an unprecedented crisis for the travel and tourism industry. As part of our journey towards eventual recovery of tourism, the Group is seizing this period of adversity to re-imagine and re-adapt our guest offerings. ” the company said. The company  strategy looking ahead, includes the development of a $4.5bn mega expansion in Singapore. Genting Overseas 4.25% bonds maturing in 2027 traded at 102.77, down 0.05.

For the full story, click here

 

Yongcheng Coal Says It Wired Funds for Coupon Payment; Tsinghua In Talks for Funding

China state-owned enterprise Yongcheng Coal said on Friday that it wired CNY 32.4mn ($5mn) to pay a bond coupon after they missed repayment due November 10, as per Bloomberg. The company is still raising funds to repay bond principal. This comes after Yongcheng Coal said on November 10 that it was unable to make principal and interest payments on CNY 1bn ($51mn) of short-term commercial papers maturing that day due to tight liquidity, constituting a default.

The Bank of Beijing was considering providing funding support to help address Tsinghua Unigroup’s debt issues, according to sources as per Bloomberg. The bank was yet to reach a final decision regarding the support on Friday, which could come in the form of a loan. Unigroup was scheduled to repay a CNY 1.3bn ($196mn) bond due November 15. Unigroup sought creditor approval to repay 10% of the principal on its yuan bond and extend the rest by six months, according to sources. They also plan to repay interest in full on the bond, said the sources. The proposal needed agreement from creditors and is an effort to avoid default. Further updates are likely this week. Unigroup’s 6% 2020s were up 0.36 to 28.75 cents on the dollar while Tsinghua’s 4.75% 2021s were down 1 point to 28.94.

 

Future Retail Reports a Quarterly Loss of $93 Million

India’s Future Retail reported a net loss of ~INR 6.9bn ($93mn) for the quarter ended September against a net loss of ~INR 5.6bn ($75mn) in the prior quarter and against a net profit of INR 1.66bn ($22mn) in the same quarter last year. The half year loss stood at INR12.54bn ($170mn) against a profit of INR 3.24bn ($44mn) for the same period last year. Though, the revenues from operations at ~INR 14.24bn ($190mn) were marginally up from INR 13.58bn ($180 mn) in the quarter ended June, these were down a whooping 74% vs. INR 54.49bn ($730mn) in the same period last year. Half year revenues ended at INR 29.59bn ($400mn), down a massive 72.3% compared to last year when it reported revenues of INR 106.78bn ($1.43bn).

Future Retail has been going through a bad phase due to its high leverage. As a part of its restructuring efforts, the Kishore Biyani led group had entered a deal to sell Future Retail to Reliance Retail for INR 247bn ($3.32bn) this August. The deal, however, has been challenged by Amazon in court. Future Retail’s 5.6% bonds maturing in 2025 traded up by 1 point at 72.19 cents on the dollar.

For the full story, click here

 

WeWork Secures $1.1 Billion in New Financing from SoftBank

Co-working space provider WeWork announced late last week that it has secured new financing worth £840mn ($1.1bn) from majority shareholder SoftBank Group. The company said, via a memo to employees, that it has reduced its cash burn to $517mn in Q3 vs. $671mn in Q2. The memo added that it has successfully exited 66 locations and amended 150 lease arrangements that resulted in an estimated reduction of $1.5bn in long-term liabilities. The New York-headquartered company reported cash and unfunded cash commitments of $3.6bn as at end-September, $500mn lower than the figure as at end-June. WeWork’s 7.875% bonds due 2025 traded lower by 1.1 points since Friday’s close to 69.3 cents on the dollar.

For the full story, click here

 

Zambia Becomes First African Sovereign to Default on Debt

Distressed African nation Zambia defaulted on $3bn worth of its dollar bonds after the grace period on a coupon payment of $42.5mn lapsed on Friday. Foreign bondholders rejected a request from the Zambian government to provide debt relief by suspending interest payments for six months. This sets the stage for what is expected to be a difficult restructuring process for the country. Samir Gadio, head of Africa strategy at Standard Chartered Bank Plc in London said, “A default could make an orderly and timely restructuring more challenging. A prolonged default may see some investors unwind non-performing bonds battering down prices that are already below half of face value.” Zambia’s foreign creditors, who are owed almost $12bn, are a diverse bunch ranging from European pension funds to state-owned Chinese banks, according to Bloomberg. Bondholders fear that any relief provided would be used to service debts to Chinese lenders, which account for more than 25% of the country’s external liabilities. Simon Quijano-Evans, an economist at Gemcorp Capital in London said, “From Eurobond holders’ side, this is not about an unwillingness or otherwise to forgive debt. It is clear to Eurobond holders that the debt problems escalated when the bilateral loans accelerated, after the Eurobonds were issued. The nature of those deals quickly caused problems for the country.” Zambia’s 8.5% bonds due 2024 and 8.97% bonds due 2027 traded slightly lower since Friday’s close to 46 and 45 cents on the dollar respectively.

For the full story, click here

 

Pampa Energia Plans to Fund Natural Gas Capex in 2021 with Cashflows & Bonds

Pampa Energia, one of Argentina’s largest energy companies, may sell bonds in the local market to help finance plans to potentially triple investments in natural gas production next year though it will mostly rely on its cash flows. Pampa Energia could increase its investment in gas to $100mn in 2021, up from $35mn this year. Whilst the government wants the incentives program to revive gas production, the stimulus also has a wider aim of protecting dollar reserves. Pampa Energia raised ARS 6.36bn in July ($88.5mn then) worth of peso-denominated, 13-month bonds at 250 basis points over Badlar, a local reference rate now at 31.56%. Pampa’s dollar bonds are higher in trade with its 9.125% 2029s up 1.2 points to 78.94 and its 7.5% 2027s up 0.5 to 78.11 on the secondary markets.

For the full story, click here

 

Venezuela Opposition to Appeal Decision Finding PDVSA 2020 Bonds Valid

Opposition leader Juan Guaido’s team said Friday that it will appeal a U.S. court ruling that found Venezuelan state oil company PDVSA’s 2020 bonds (backed by its 50.1% stake in refiner Citgo Petroleum Corp), to be valid and enforceable. “Our duty is to defend the nation’s greatest interests for the benefit of the Venezuelan people. We will continue to take the necessary actions to ensure that goal,” Guaidó’s press office said in a statement. The opposition filed a lawsuit to declare the bonds invalid on the grounds that Nicolas Maduro’s government had issued them without Parliament’s approval.

The opposition defaulted on a payment last year, raising the prospect that creditors could seize an ownership stake in the refiner Citgo. Current sanctions by the U.S. prevent creditors from doing so. Washington sanctioned PDVSA last year as part of its bid to oust Venezuelan President Nicolas Maduro, preventing bondholders from taking such action until at least January 2021, which has greatly impacted the trade of crude oil and gasoline import. PDVSA’s dollar bonds are trading at extreme distressed levels of less than 5 cents on the dollar.

For the full story, click here

 

Gulfport Forced Into Chapter 11 Bankruptcy

Gulfport has joined a slew of US companies that have filed for bankruptcy during the ongoing pandemic. The company filed for Chapter 11 bankruptcy under US law on November 13 in a court in Houston after it failed to keep itself afloat due to high debt and low oil prices. The company’s leverage had increased after it undertook a series of acquisitions over the past decade. In a press release on November 14, the company announced that it has entered into a Restructuring Support Agreement (RSA) with over 95% of its revolving credit facility lenders and certain noteholders holding 2/3rd of its senior unsecured notes. According to the release, the company expects to  eliminate ~$1.25bn in funded debt and also significantly reduce annual cash interest expenses going forward. The company also hopes to  issue $550mn of new senior unsecured notes. The company has also secured $262.5mn in debtor-in-possession (“DIP”) financing from Gulfport’s existing lenders.  Gulfport’s 6.625% 2023’s were down 1.28 points and were trading at ~56 cents on the dollar in the secondary market.

For the full story, click here

 

Term of the Day

Non Viability Trigger Event

This is an event when the regulators/relevant authorities determine that the company under consideration may be non-viable or may not remain a going concern unless measures are taken to revive its operations given financial difficulties. Once the regulators determine that the company would be non-viable, it would trigger an action where for example, the company would have a right to irrevocably write-off (partly or fully) the outstanding principal of the bonds and make this portion non-payable henceforth. It could also include accrued and unpaid interest/dividends being unpayable. Thus, in this case, the regulator determines that without a write-off, the issuer would become non-viable and without a public sector injection of capital or other equivalent support, the issuer would become non-viable.

Over the weekend, Baoshang Bank, a small Inner Mongolian lender wrote down the principal of a CNY 6.5bn ($984mn) Tier 2 bond. As a result, it will not make remaining coupon payments worth a total of CNY 585.6mn ($89mn). Baoshang said the write down followed from commercial bank rules and clauses in the bond’s prospectus after the PBOC and the CBRIC (two regulators) said in a notice that the bank had experienced a “non-viability trigger event”.

 

Talking Heads

On the G20 countries striking historic debt pact to help poorer states hit by Covid

Bruno Le Maire, French finance minister

“I count on everyone’s constructive spirit to ensure swift and cooperative implementation of the common framework, with several countries already asking for debt treatments, in particular in Africa,” Le Maire said.

Taro Aso, Japanese finance minister

“From now on all interested parties must ensure to implement the common framework. Debt transparency is extremely important,” Aso said.

Tim Jones, head of Policy at Jubilee Debt Campaign

“This announcement falls far short of what is needed to tackle the wave of debt crises in poorer countries,” he said. “With many countries facing debt crises and Zambia today on the verge of default, the G20 needs to stop kicking the can down the road,” he added.

Eric LeCompte, a United Nations adviser on debt and executive director of Jubilee USA Network

“Unfortunately, middle-income countries that will see some of the highest poverty increases due to the crisis, are excluded from this process,” LeCompte said.

 

On the demand for JP Morgan’s long bonds

Dan Bruzzo, managing director of bank finance at broker-dealer Amherst Pierpont

“Leading up to this year we had a shortage of long-dated bank paper, and the stuff is really hard to source in the secondary market, so the demand is certainly there,” said Bruzzo. “From what we’re seeing in the secondary market, that stuff is never available and you have to aggressively bid it if you want that kind of exposure.”

In a report by CreditSights
“Banks have been issuing more long-dated paper this year than usual, including a relative surge of 20-year offerings, although much of that supply came earlier in the year when credit curves were inverted – now they’re just pretty flat,” CreditSights reported. “There may be a scarcity factor influencing these 20-year offerings, given banks are not typically long-duration issuers, and we imagine those long-notes are in high demand for buy-and-hold investors like insurance companies.”

 

On the need for Turkey to deliver a far smaller interest-rate increase than forecasted – in a report by Alina Slyusarchuk, Andrea Masia and Georgi Deyanov, Morgan Stanley economists

Turkey’s central bank “might decide to deliver a larger hike to reinforce its intention to dampen inflationary pressures but we think domestic inflation drivers such as local-currency loans growth and domestic demand growth have normalized, which in itself calls for a less aggressive action,” Morgan Stanley’s economists said. “We think that such a move would allow for the weighted average cost of funding to remain above current inflation while ex-ante real rates can go up to around 4%, which is half way through what was needed in 2018,” Slyusarchuk, Masia and Deyanov said.

 

On Saudi investors pondering over expected bond returns under Biden presidency – Sergey Dergachev, a money manager at Union Investment Privatfonds GmbH

“There was a strong interest by Taiwanese insurers for A rated longer-dated debt, and Saudi as well as Qatar have been net beneficiaries of this hunt for yield,” said Dergachev. Saudi-specific themes “have almost not been a driver at all for credit spreads of the country’s sovereign bonds this year,” he said. The kingdom’s “credit trends are negative, at current oil prices,” he said. “I would not expect any further spread tightening.”

 

On Thailand Securities and Exchange Commission (SEC)’s move to mandate perpetual bond issuers to acquire a credit rating – Sirivipa Supantanet, SEC deputy secretary-general

“We are concerned as retail and high net worth investors should have a better gauge of the investment risk in perpetual bonds. They should not decide to invest based only on an attractive return,” Mrs Sirivipa said. “There is a possible risk in not receiving interest and principal, so the performance of the company must be monitored regularly,” she said.

 

Top Gainers & Losers – 16-Nov-20* 

BondEvalue Gainer Losers 16 Nov

 

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