US markets continued with the momentum shrugging Monday’s risk-off sentiment even as the unemployment numbers came higher than expected – the S&P and Nasdaq were up 0.2% and 0.4% respectively. The upside led by IT, Healthcare and Consumer Discretionary up ~0.5% and was offset by Financials and Energy down ~1%. Strong corporate earnings continued to flow in with Intel, American Airlines (AA), Southwest and AT&T reporting numbers. According to Refinitiv, 15% of S&P 500 companies have reported earnings out of which 88% have beaten estimates. AA and Southwest’s profits for Q2 indicates a recovery in travel demand. In the week ending July 17, weekly jobless claims increased 51k to 419k, vs. estimates of 350k. US 10Y Treasury yields were a tad lower at 1.28%. The ECB held monetary policy steady while committing to purchasing €1.85tn ($2.2tn) of bonds until March 2022 under their asset purchase program. European bourses were mixed – DAX and CAC were up 0.6% while FTSE was down 0.4%. US IG CDS spreads widened 0.3bp and HY tightened 0.8bp. EU Main and Crossover spreads tightened 0.5bp and 2.4bp respectively. Brazil’s Bovespa was up 0.2%. Investors are keenly monitoring Chinese tech stocks as Chinese regulatory concerns resurface after penalties were imposed on ride-provider Didi. Asian markets opened mixed – Nikkei is up 0.6%, HSI, Shanghai and Singapore’s STI are down 0.9%, 0.4% and 0.1%. Asia ex-Japan CDS spreads were 0.6bp tighter.
Navigating The Bond Markets by Leveraging the BEV App | July 28
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New Bond Issues
Nanchang Jinkai Group $ 2.92Y credit-enhanced bond final at 3.45%
CK Infrastructure raised $300mn via a Perpetual non-call 5Y (PerpNC5) fixed-for-life bond at a yield of 4%, 20bp inside initial guidance of 4.2% area. The bonds have expected ratings of BBB, and received orders over $850mn, 2.8x issue size. There was a 20-cent rebate for private bank orders. This is CK Infra’s first dollar bond issuance since 2017, and comes after calling back its $1.2bn 5.875% Fixed-for-life perp in March this year.
Ping An Real Estate raised $600mn via a two-trancher. It raised $300mn via a 3Y at a yield of 2.826%, 40bp inside initial guidance of T+285bp. It also raised $300mn via a 5Y green bonds at a yield of 3.545%, 32.5bp inside initial guidance of T+315bp area. The bonds have expected ratings of Baa3, and received orders over $1.8bn, 3x issue size. For the 3Y tranche, Asia took 97% of the notes and Europe 3%. Banks/financial institutions were allocated 66%, fund managers 30%, private banks 2% and corporates 2%. For the 5Y tranche, Asia took 97% and Europe 3%. Banks/financial institutions were allocated 56%, fund managers 33%, private banks 8% and corporates 3%. Wholly owned subsidiary PingAn Real Estate Capital is the issuer and the bonds have a keepwell deed and a liquidity support undertaking provided by Ping An Real Estate. Proceeds will be used for offshore refinancing to support certain eligible green projects in accordance with a green finance framework.
China Citic Bank International raised $600mn via a PerpNC5 AT1 at a yield of 3.25%, 50bp inside initial guidance of 3.75% area. The bonds have expected ratings of Ba2, and received orders over $4.8bn, 8x issue size. APAC investors bought 99% and EMEA 1%. Asset/fund managers received 41%, banks 39%, corporates 17% and private banks and others 3%. The bonds are callable every six months starting 29 Jul 2026 and if not called on the first call date, the coupon resets to the 5Y US Treasury yield + 253bp. The bonds do not have a coupon step-up but have a dividend stopper. If the bonds are not called There is a non-viability loss-absorption feature and the securities are subject to the Hong Kong Monetary Authority’s resolution regime. Proceeds will be used for funding and general corporate purposes.
McLaren raised $620mn via a 5NC2 bond at a yield of 7.5%, 25bp inside initial guidance of 7.75% area. The bonds are rated Caa1/CCC+/B, and received orders over $4bn, 6.5x issue size. Proceeds will be used to refinance their 2022s, existing super senior revolving credit facility and add cash to their balance sheet. Bloomberg notes that the 7.5% yield is ~1.5% more than the average CCC-rated dollar denominated credit.
Shandong Iron & Steel Group raised $500mn via a 3Y bond at a yield of 4.8%, 55bp inside initial guidance of 5.35% area. The bonds are unrated and received orders over $2bn, 4x issue size. Asia took 98% and EMEA 2%. Banks/financial institutions got 49%, fund/asset managers 50% and private banks 1%. Wholly owned subsidiary Shandong Iron and Steel Xinheng International is the issuer with a guarantee from the parent. Proceeds will be used for debt refinancing and to repay shareholder loans of the guarantor’s offshore subsidiaries.
Guangzhou Industrial Investment Fund Management raised $300mn via a 5Y at a yield of 2.85%, 50bp inside initial guidance of 3.35% area. The bonds have expected ratings of A-, and received orders over $3.15bn, 10.5x issue size. APAC bought all of the notes. Banks/financial institutions were allocated 62%, asset/fund managers/hedge funds 32%, insurers 3%, and private banks 3%. Wholly owned subsidiary Vertex Capital Investment is the issuer with a guarantee from the parent. Proceeds will be used for debt refinancing and general corporate purposes.
Shanghai Fosun High Technology raised $200mn via a 3Y Shanghai Free Trade Zone (FTZ) bond at a yield of 4.3%. The bonds are unrated. Proceeds will be used for debt refinancing.
ICYMI: Chinese Developers’ Bond Spreads Widen as Focus on Three Red Lines Increases
In case you missed it – China’s real estate developers’ high yield Index underperformed its peers witnessing a sharp drop of 6% in June and down 3.7% YTD. Investor concerns were apparent since the start of Q2 with Z-Spreads widening across certain Chinese real estate developers. China Evergrande’s Z-Spread widened by a massive 1,800bp since April, the highest in the sector as investor concerns grow over its liquidity position. The ‘three red-lines’, a key regulatory threshold for property developers set by Beijing has become an important factor that separates the winners and the losers.
In this editorial piece, we detail the widening Z-Spreads across companies in the Chinese property sector, the sector’s underperformance, and the three red-lines calculations of the key players.
New Bonds Pipeline
- Adani Ports SEZ hires for $ 10Y and/or 20Ybond
- Medco Energi plans up to $800mn Yankee offering
- ICBC Financial Leasing hires for $ bonds; calls today
- EQT Corp. Upgraded To ‘BB+’ By S&P On Close Of Acquisition; Outlook Positive
- Fitch Upgrades Alcoa Nederland Holding’s Sr. Secured Revolver to ‘BBB-‘/’RR2’; Removes UCO
- LyondellBasell Industries N.V. Upgraded To ‘BBB’ By S&P, Outlook Stable On Better Earnings, Debt Reduction
- Fitch Downgrades Alpha Holding to ‘RD’ on Uncured Payment Default
- Fitch Affirms Marathon at ‘BBB-‘; Revises Outlook to Positive
- Russia-Based Petrochemical Producer Sibur Outlook Revised To Stable By S&P; Affirmed At ‘BBB-‘
- Fitch Places CMC Leasing’s Long-Term IDR on Rating Watch Negative
Term of the Day
Revolving credit is a form of borrowing where the credit line has a maximum limit but the borrower can access it in any quantum based on their funding needs. In a normal borrowing, once the loan has been repaid, the borrower must take a new loan to borrow more. In revolving debt, the borrower can re-access any funds that have been paid back too. Revolving debt generally comes with a higher interest rate and does not necessarily have a fixed coupon.
McLaren in today’s example raised $620mn with some of its proceeds going towards refinancing an existing revolving credit facility.
Top Gainers & Losers – 23-Jul-21*