JPMorgan expects that the curbs and sanctions imposed by US on several Chinese companies could affect ~$55-$60bn of bonds with forced index related selling. 44 firms were listed by the Defense Department and Reuters reports that a number of them have been cut or delisted from either various equity indices or the NYSE. But fixed income markets are still grappling with the impact as many bonds are issued through subsidiaries rather than main companies as per Reuters. New president Joe Biden has not spelled out any plans for the executive order on Chinese companies by Donald Trump forcing the divestment but could easily revoke it. JPMorgan noted that debt issued by ChemChina and CNOOC were in focus given its holding by US based investors. They reckon that $1bn of forced selling has occured with another $1.3bn expected on ChemChina’s bonds. With regard to CNOOC, of their $19.5bn dollar debt, JPMorgan estimates that $3.2-3.5bn worth of bonds are held by US based investors. However the analysts also noted that for these companies, “Dependence on offshore investors for funding needs is low with offshore USD bonds forming a very small part of their capital structure”. “We think that for investors who can buy the bonds, they should use that round of selling, which we think would be the last round, if at all, to take the opposite view and buy some of these affected bonds,” JPMorgan said.
CNOOC’s 3.3% 2049s were flat at 92, yielding 3.8% while ChemChina’s 4.75% 2049s were down 1.05 points to 101.2, yielding 4.7%.
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