US markets started the day in the green after US jobless claims hit a post-pandemic low; however, negative sentiment gripped the markets in the second half – S&P and Nasdaq ended the day 0.5% and 0.3% lower. Financials up 0.3% was the only sector which provided some substantive support to the markets. Real Estate and Healthcare down 2.1% and 1.2% dragged the markets lower. IT, Industrials, Utilities and Consumer Staples were also down ~0.5%. European stocks were mixed after news of the ECB slowing the pace of its bond buying program – FTSE was down 1% while CAC and DAX were slightly up, 0.2% and 0.1% respectively. Brazil’s Bovespa regained some of Wednesday’s losses and closed 1.7% higher. UAE’s ADX closes 1.2% higher while Saudi’s TASI ended 0.3% lower. Asian markets inched higher – HSI started the day with gains of more than 0.5%. Nikkei, Shanghai and Singapore’s STI followed with gains of ~0.2-0.3%. US 10Y Treasury yields fell another 4bp to 1.3%. US IG and HY CDX spreads widened 0.2bp and 1.6bp respectively. EU Main CDS spreads were 0.5bp tighter and Crossover CDS spreads tightened 3.7bp. Asia ex-Japan CDS spreads widened 0.8bp.
US jobless claims hit a post-pandemic low as the economy continued to recover. In the week ending September 4, initial jobless claims reported 310k vs. 345k in the previous week (revised level). These were also better than expectations of 335k. This is the lowest level since March 14, 2020 when it recorded 256k. The 4-week moving average posted 339.5k, a decrease of 16.75k from the previous week’s revised average. This is also the lowest level since March 14, 2020 reported number of 225.5k. The European Central Bank (ECB) meanwhile voted to kept its monetary policy unchanged while dialing down on the pace of emergency bond purchases over the coming quarter.

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New Bond Issues

Sands China raised $1.95bn via a three-tranche deal. It raised:
  • $700mn via a 5Y bond at a yield of 2.343%, 35bp inside initial guidance of T+190bp area
  • $650mn via a 7Y bond at a yield of 2.888%, 35bp inside initial guidance of T+215bp area
  • $600mn via a 10Y bond at a yield of 3.259%, 35bp inside initial guidance of T+230bp area
The bonds have expected ratings of Baa2/BBB- (Moody’s/S&P). The bonds have a 25bp coupon step-up for each one-notch downgrade below investment grade, up to a maximum of 200bp. Investors have a put option at par if Sands China loses its gaming licence in Macau. The new 5Y bonds are priced 11.7bp tighter to its older 3.8% 2026s that yield 2.46%. The new 7Y bonds are priced 15.2bp tighter to its older 5.4% 2028s that yield 3.04%. The new 10Y bonds are priced 7.9bp wider to its older 4.375% 2030s that yield 3.18%. The pricing on the new 5Y and 7Y bonds is tighter likely as none of the older bonds have a coupon step-up contingent on rating downgrades.
National Bank of Kuwait (NBK) raised $1bn via a 6NC5 bond at a yield of 1.74%, 20bp inside initial guidance of T+115bp area. The bonds have expected ratings of A1/AA- (Moody’s/Fitch). The bonds will be issued by NBK SPC and guaranteed by National Bank of Kuwait. The bonds are callable on and anytime after September 15, 2026, and if not called, will reset to the prevailing SOFR rate plus 105bp. Proceeds will be used for general corporate purposes.
Vakifbank raised $500mn via a 5Y sustainability bond at a yield of 5.625%, ~56.25bp inside initial guidance of 6.125-6.25%. The bonds have expected ratings of B+ (Fitch). The new bonds are priced 26.5bp wider to its existing 6.5% sustainability bond due 2026 that currently yield 5.36%.
CMB Financial Leasing raised $900mn via a two-tranche dollar carbon neutrality-themed green deal. It raised $600mn via a 3Y bond at a yield of 1.313%, 42bp inside initial guidance of T+130bp area, and $300mn via a 5Y bond at a yield of 1.84%, 45bp inside initial guidance of T+150bp area. It also raised €100mn via a 3Y green bond at a yield of 0.581%, 25bp inside initial guidance of MS+125bp area. The bonds have expected ratings of BBB+ (S&P). The dollar tranche received combined orders of over $5.4bn, 6x issue size, while the Euro tranche orders are not available yet. The bonds will be issued by wholly and indirectly owned subsidiary CMB International Leasing Management. CMB Financial Leasing has provided a keepwell, and will also provide liquidity support deed and a deed of asset purchase undertaking.
China Merchants Securities International raised $500mn via a 3Y bond at a yield of 1.295%, 44bp inside the initial guidance of T+130bp area. The bonds have expected ratings of Baa2 (Moody’s), and received orders over $3.9bn, 7.8x issue size. Proceeds will be used for supporting business development, optimizing debt structure and improving operational liquidity. The bonds will be issued by CMS International Gemstone and guaranteed by China Merchants Securities International.
Kuveyt Türk raised $350mn via a 10.25NC5.25 sustainability tier 2 sukuk at a yield of 6.125%, 50-62.5bp inside the initial guidance of 6.625-6.75%. The sukuk has expected ratings of B (Fitch) and will be issued by KT21 T2 Co. Proceeds will be used to finance and/or refinance eligible green and/or social projects in accordance with the bank’s sustainable finance framework. The sukuk are callable on September 16, 2026, and if not called, the coupon will reset to 5Y Treasury plus 533.2bp. Kuveyt Türk is the largest Islamic bank in Turkey by total assets and is 62.2%-owned by Kuwait Finance House.
Nippon Life raised $900mn via a 30NC10 Yankee bond at a yield of 2.9%, 35bp inside the initial guidance of 3.25% area. The bonds have expected ratings of A3/A– (Moody’s/S&P). The bond has a first call date on September 16, 2031, and if not called, the coupon resets every five years starting on the call date to US 5Y Treasury plus initial spread of 260bp and a step-up of 100bp.
Denso raised $500mn via a 5Y sustainability bond at a yield of 1.239%, 25bp inside the initial guidance of T+70bp area. The bonds have expected ratings of A2/A+ (Moody’s/S&P). Proceeds will be used for eligible social and green projects. Toyota Motor owns 24.38% stake in Denso as of March 31.
Anji Qicai Lingfeng Rural Tourism raised $50mn via a 3Y bond at a yield of 4.8%. The bonds are unrated and guaranteed by Zhejiang Anji State-controlled Construction and Development. The issuer is a state-owned company ultimately controlled by the finance bureau of Anji county in China’s Zhejiang province. It mainly engages in the construction business within the Lingfeng Tourist Resort.

 

 

New Bonds Pipeline 

  • Bangkok Bank T2 subordinated notes
  • Kepco $ green bond with expected 5Y tenor
  • IBK $ sustainability 3Y or 5Y bond
  • Oxley Holdings S$ tap of 6.9% 2024s bond
  • JSW up to $1bn planned issuance
  • ICBC $6bn AT1 Perp
  • Nissan Motor Acceptance Corp $ bond

 

Rating Changes

 

Term of the Day

Trust Loans/Entrusted Loan

Trust loans or entrusted loans are loans where a bank acts as a trustee to lend money on behalf of a trustor which can be a government agency, enterprises/public institutions or individuals. Importantly, the bank that acts as a trustee only collects loan handling charges and will not assume liability for the repayment of the loan on behalf of the borrower. They are part of the shadow banking system and help provide quick access to capital especially if credit conditions are tight.

 

Talking Heads:

On ECB Bond Buying May Last For Years

PIMCO PM Konstantin Veit

“The ECB will remain highly accommodative for a long time as conditions for rates lift-off are unlikely to be met any time soon… Similar to the Bank of Japan, policy sustainability considerations might increasingly gain in importance.”

Joost van Leenders, senior investment strategist at Kempen Capital

“The real question lies in what will happen when the PEPP is exhausted… To prevent a sudden step down in the ECB’s asset purchases, APP monthly purchases will be increased.”

On Dubai Business Conditions Improving Further- Khatija Haque, head of research and chief economist of Emirates NBD

“We remain optimistic that private sector business conditions will improve further in Q4 2021 as Expo 2020 gets underway and the recent further easing of travel restrictions boosts visitor numbers during the high season for the travel and tourism sector… Business activity grew at the fastest pace in over a year, but new work growth was more modest. The surge in activity last month may have been due to efforts to complete projects ahead of the start of Expo 2020 in October”

On Not Being Out of the Woods Yet – Chicago Fed’s Charles Evans

“A common element in all this continues to be high uncertainty – as new variants of the COVID-19 virus are impacting health and safety across the country.”

 

Top Gainers & Losers – 10-Sep-21* 

 

 

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