SOVEREIGN DEBT RESTRUCTURING | MASTERCLASS

A deep dive masterclass on sovereign debt restructuring, to be conducted virtually by Asian high yield bond expert Florian Schmidt.

30 June 2022 (Thu), 5pm Singapore/HK time

US equity markets ended higher on Tuesday with the S&P and Nasdaq up over 0.9% each. Sectoral gains were led by Energy, up over 3% followed by Industrials and Healthcare, up over 1.3% each. US 10Y Treasury yields eased by 6bp to 2.99%. European markets ended lower with the DAX and CAC down 0.7% each and the FTSE down 0.1%. Brazil’s Bovespa was down 0.1%. In the Middle East, UAE’s ADX was down 0.3% and Saudi TASI was down 1.2%. Asian markets have opened mixed today – Shanghai and STI were down 0.7% and 0.2% while HSI and Nikkei were up 1.7% and 0.9% respectively. US IG CDS spreads tightened 0.5bp and HY spreads were 1bp tighter. EU Main CDS spreads were 1.5bp wider and Crossover spreads were 9bp wider. Asia ex-Japan CDS spreads widened 0.7bp. Asian primary markets have seen its busiest day since April 13 , with 7 new dollar bond deals launched.

US trade deficit narrowed by the most in 9.5 year, by 19.1% to $87.1bn in April thanks to record high exports. Separately, Australia’s central bank hiked its policy rate by 50bp, the most in 22 years, in a hawkish surprise to counter inflation.

 


Masterclass on Sovereign Debt Restructuring | 30 June 2022

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New Bond Issues

  • NWD $ 5Y Social at T+325bp area
  • Bangkok Bank $ 5Y at T+175bp area
  • OCBC $ 10NC5 at T+200bp area
  • ASB Bank $ 10NC5 at T+250bp area
  • Qingdao Jiaozhou Bay Development $ 3Y at 5.3% area
  • Shandong Guohui Investment $ 3Y at 5.05% area
  • Kyobo Life $ 30NC5 at 6.3% area

New Bond Issues 8 Jun 22

JPMorgan raised $4.5bn via a three-trancher. It raised:

  • $2bn via a 3NC2 bond at a yield of 3.845%, 20bp inside initial guidance of T+130bp area
  • $500mn via a 3NC2 FRN at SOFR 97bp vs initial guidance of SOFR equivalent area
  • $2bn via a 8NC7 bond at a yield of 4.565%, 22bp inside initial guidance of T+175bp area

The bonds are rated A2/A-.

HSBC raised €2bn via a 5NC4 bond at a yield of 3.019%, 10bp inside initial guidance of T+150bp area. The bonds received orders over €2.9bn, 1.5x issue size. The senior unsecured bonds are rated A3/A-/A+. If not called by June 15, 2026, the coupon resets on a quarterly basis to the 3m Euribor+144.5bps.

UBS raised €2bn via a  two-trancher. It raised €1bn via a 5NC4 bond at a yield of 2.764%, ~17.5bp inside initial guidance of T+130/135bp area. It also raised €1bn via an 8NC7 bond at a yield of 3.168%, 20bp inside initial guidance of MS+155bp area. Coupons are fixed till its call dates of Jun 15, 2026 and June 15, 2029 for the 5NC4s and 8NC7s respectively. If not called, coupons will reset at 1Y Mid Swap plus the initial spreads of 115bp and 135bp respectively. The senior unsecured bonds are rated A-/A+ and received orders over €3.8bn, 1.9x issue size.

Korea Electric Power raised $800mn via a two-trancher green issuance. It raised $500mn via a 3Y bond at a yield of 3.701%, 40bp inside initial guidance of T+120bp area. It also raised $300mn via a 5Y at a yield of 4.034%, 40bp inside initial guidance of T+145bp area. The bonds are rated Aa2/AA (Moody’s/S&P). The 3Y bond received strong orders of over $4.1bn, ~8x issue size. By region, Asia took 71%, EMEA 15% and the US 14%. Asset and fund managers took for 57%, banks/private banks took 19%, central banks and sovereigns/supranationals/agencies (SSAs) took 17%, insurance/pension funds and others took 7%. The 5Y bond also received solid orders of over $3bn, 10x issue size. Asia took 70%, EMEA 14% and the US 16%. Asset/fund managers took 63%, banks/private banks 23%, central banks/SSAs 7%, insurance/pension funds 7%. Proceeds from the Singapore-listed transaction will be used to finance or refinance the borrower’s funding related to green projects

Changchun Urban raised $200mn via a 3Y green at a yield of 5%, 20bp inside initial guidance of 5.2% area. The senior bonds will be rated Baa1/BBB+ (Moody’s/Fitch). Chang Development International, a wholly owned subsidiary, is the issuer and the parent is the guarantor. Proceeds will be used to refinance medium and long term offshore debt that is due within a year.

Zhoushan Islands New Area Penglai State Asset Investment Group raised $150mn via a 3Y SBLC bond at a yield of 3.9%, 10bp inside initial guidance of 4% area. The senior unsecured credit enhanced bonds are unrated. They have an irrevocable standby letter of credit issued by the LC bank.

 

New Bonds Pipeline

  • BOC Frankfurt hires for $ Green bond
  • Shandong Hi-Speed hires for $ Green bond
  • Jordan hires for $ 5Y bond
  • Shandong Guohui Investment hires for $ bond
  • Kyobo Life hires for $ Sustainability bond
  • Busan Bank hires for $ Social bond
  • Continuum Energy Aura hires for $ Green Bond

 

Rating Changes

 

Term of the Day

Restricted Default

Fitch defines Restricted Default (RD) as the rating for an issuer that has defaulted on a bond, loan or other financial obligation but has not filed for bankruptcy or entered into liquidation or any other formal winding-up process, and which has not ceased operations. RD is different from Default (D) in that Fitch rates an issuer as default if, in its opinion, the issuer has entered into bankruptcy filings, liquidation or any other formal winding-up process.

Talking Heads

On Restructuring Guru Buchheit Warning Sri Lanka on Holdout Creditors

“One must always anticipate the possibility of holdout creditors in an operation of this kind. No one seriously doubts that Sri Lanka needs debt relief. The debate may focus on how much debt relief and from whom will it be sought… The main challenge I see is one of coordination among the three main creditor groups — bondholders, Paris Club bilaterals and non-Paris Club bilaterals like China and India. A commitment by Sri Lanka to even-handed treatment of these three groups should go a long way toward smoothing the path of the negotiations.”

On Pimco’s Crescenzi Saying Odds Are Credible Fed Gets a Soft Landing

“Market participants still view the Federal Reserve as credible and will succeed ultimately in achieving its inflation expectation of 2.6% for the end of 2023. It does look like the chances of a soft landing are pretty good. The chances of a deep recession are pretty low… What the Federal Reserve wants is to avoid an outright recession, defined as a decrease in employment and output. What it wants is a growth recession, which is the soft landing between 0% growth and 1.8%, which is the growth potential. Navigating it into a narrow runway is challenging.”

On Janet Yellen Warning Inflation Is Likely to Stay High

“Senator, we’re seeing high inflation in almost all developed countries around the world, and they have very different fiscal policies. It can’t be the case that the bulk of the inflation we’re experiencing reflects the impact of the ARP… Both of us probably could have used a better term than ‘transitory’… There’s no question that we have huge inflation pressures, that inflation is really our top economic problem at this point and that it’s critical we address it. I do expect inflation to remain high although I very much hope that it will be coming down.”

Top Gainers & Losers – 08-June-22*

BondEvalue Gainer Losers 8 Jun 22

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