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 lower with the S&P and Nasdaq down 1.1% and 0.7% each. Sectoral losses were led by Real Estate, Materials and Utilities, down over 2% each. US 10Y Treasury yields rose 6bp to 3.05%. European markets ended lower too with the DAX and CAC down 0.8% each and the FTSE down 0.1%. Brazil’s Bovespa was down 1.6%. In the Middle East, UAE’s ADX was down 0.3% and Saudi TASI was down 0.5%. Asian markets have opened broadly lower today – Shanghai, HSI and STI were down 0.5%, 0.2% and 0.4% while Nikkei was up 0.2%. US IG CDS spreads widened 2.2bp and HY spreads were 6.2bp wider. EU Main CDS spreads were 1.5bp wider and Crossover spreads were 8.4bp wider. Asia ex-Japan CDS spreads tightened 1bp. 

 

New Bond Issues

 

  • Lianyungang Port Group $ 3Y green bond at 5.3% area
  • BOC Frankfurt $ 3Y green bond at T+65bp area
  • Shandong Hi-Speed $ 3Y green bond at 4.6% area

New Bond Issues 9 Jun 22

New World Development (NWD) raised $700mn via dual-trancher along with an exchange offer. The Hong Kong-based company raised $200mn via a 5Y social bond at a yield of 5.92%, 35bp inside initial guidance of T+325bp area. It also raised $500mn via a PerpNC3 green bond at a yield of 6.15%, 35bp inside initial guidance of 6.5% area. The bonds are unrated. The 5Y received orders of over $1.5bn, 2.1x issue size. APAC accounted for 98% of the deal and EMEA 2%. Asset/fund managers took 59%, private banks/corporates 37%, and banks/financial institutions 4%. The PerpNC3 received orders over $1.5bn, 3x issue size. APAC accounted for 98% and EMEA 2%. Asset/fund managers took 55%, private banks 36%, and banks/financial institutions/insurers 9%. NWD (MTN) is the issuer of the 5Y social bond while NWD Finance (BVI) is the issuer of the PerpNC3 bond. If the Perp is not called, the coupon will reset every three years from June 2025 to the prevailing 3Y Treasury rate plus the initial spread of 620.1bp and a coupon step-up of 300bp. Proceeds from the social bond will be used to finance and refinance eligible social and green projects under its sustainable finance framework. NWD has provided guarantees for both transactions.

NWD also launched a tender offer (Term of the Day, explained below) to buyback its $950mn 4.375% 2022s and has offered to pay $1,005 per $1,000 in principal. The final acceptance amount will be decided around June 20 when the tender offer result is announced. Bondholders can tender their notes until June 17. The 2022s are currently trading at 100.41 on the secondary market.

Société Générale raised $2.65bn via a three-tranche deal. It raised:

  • $600mn via a 3Y bond at a yield of 4.351%, 10bp inside initial guidance of T+150bp area
  • $800mn via a 5Y bond at a yield of 4.677%, 10bp inside initial guidance of T+175bp area
  • $1.25bn via a 11NC10 tier 2 bond at a yield of 6.221%, 20bp inside initial guidance of T+340bp area
The 3Y and 5Y senior preferred notes are rated A1/A, while the 11NC10 tier 2 subordinated bond is rated Baa3/BBB-. The 3Y was priced at a new issue premium of 23bp over its existing 1.375% 2025s that currently yield 4.12%.

OCBC raised $750mn via a 10NC5 Tier 2 bond at a yield of 4.602%, 42.5bp inside initial guidance of T+200bp area. The senior unsecured bonds are rated A2/BBB+/A, below the issuer’s Aa1/AA-/AA- ratings. The bonds received orders over $2.6bn, 3.5x issue size. As per region, APAC took 91% of the notes, and EMEA 9%. Asset/fund managers were allocated 74%, broker dealers/insurers/others 18% and banks 8%.  The coupon will reset to the 5Y US Treasury yield + 157.5bp after five years. There is no coupon step-up. Proceeds from the Singapore-listed transaction will be used for general corporate purposes.

The Kingdom of Jordan raised $650mn via a 5Y bond at a yield of 7.95%, 5bp inside initial guidance of 8% area. The senior unsecured bonds have expected ratings of B1/B+/BB-. Proceeds will be used for permitted purposes under the Jordanian Public Debt Management Law. The bonds were priced at a new issue premium of 41bp over its 5.75% bonds due January 2027 that yield 7.54% in secondary markets.

Bangkok Bank raised $750mn via a 5Y bond at a yield of 4.33%, 45bp inside initial guidance of T+175bp area. senior bonds are rated Baa1/BBB+ (Moody’s/S&P), and received orders over $3.1bn, 4.1x issue size. Asian investors were allocated 74%, Europe 14% and the US 12%. Asset managers/hedge funds/insurers took 62%, banks/financial institutions 26%, SWFs/central banks 9% and private banks/others 3%. Proceeds will be used for general corporate purposes.

Shandong Guohui Investment raised $500mn via a 3Y bond at a yield of 4.7%, 35bp inside initial guidance of 5.05% area. The senior bonds are rated BBB+ by Fitch. The bonds are issued by Guohui International BVI, a wholly owned subsidiary. The parent will provide a guarantee. Proceeds will be used to repay the borrower’s offshore debt.

Qingdao Jiaozhou Bay Development raised $300mn via a 3Y bond at a yield of 4.9%, 40bp inside initial guidance of 5.3% area. The senior notes will be rated BBB- by Fitch. Proceeds from the Hong Kong and Macau-listed notes will be used to refinance the borrower’s medium to long term bonds due this month

ASB Bank raised $mn via a 10NC5 bond at a yield of 3.9%, 10bp inside initial guidance of T+250bp area. The subordinated bonds are rated  rated A3/A- (Moody’s/S&P). 

Kyobo Life raised $500mn via a 30NC5 sustainability bond at a yield of 5.9%, 40bp inside initial guidance of 6.3% area. The bonds are rated A3/A- (Moody’s/Fitch). Proceeds will be used to finance or refinance new and existing green and social projects. If not called in 2027, the coupon will reset to the prevailing US 5Y Treasury yield + 288.7bp. If the bonds are not called in 2032, the coupon will then be reset to the US 5Y Treasury yield + 288.7bp along with a step-up of 100bp. 

 

New Bonds Pipeline

  • Busan Bank hires for $ Social bond
  • Continuum Energy Aura hires for $ Green Bond

 

Rating Changes

Term of the Day

Tender Offer

A tender offer is an offer made by an issuer to bondholders to buyback their bonds. In return, the bondholders could get either cash or new bonds of equivalent value at a specified price. The issuer does this to retire some of its old debt and can use retained earnings to fund the purchases without affecting the liquidity position of the company. Tender offers have a deadline date before which holders must tender their bonds back.

 

Talking Heads

On Seeing ‘Good Chance’ of a US Recession – Nobel Laureate Robert Shiller

See a “good chance” of a US recession that’s at least in part the result of a “self-fulfilling prophecy… The fear can lead to the actuality… The idea that we’re in a housing bubble is not so much talked about yet. But it’s starting to come back… Inflation affects everyone. Every time they go to the store they see inflation and it makes them angry.”

On risk of de-anchoring U.S. inflation expectations – IMF Deputy MD, Gita Gopinath\

There is a risk of inflation expectations “de-anchoring”. Based on current projections of what the interest rate path may be, inflation will stay above the Fed’s 2% target “for a long time”… “That’s an environment that we’re not used to being in, you could risk their inflation expectations de-anchoring… overall, the risks are towards the possibility that this will require much more steeper increases in rates”

On Bond Investors Still Buy Debt From Nations With Lower ESG Scores Than Russia

Eileen Gavin, an analyst at Verisk Maplecroft

Beyond Russia, there has been little significant change in EM portfolios’ holdings in countries that have highly questionable ESG profiles… It’s not hard to imagine one of the many autocrats of the heavily traded markets sitting in sovereign portfolios doing something comparably bad… Investors’ willingness to step away from Russia, where their hand was forced by sanctions anyway, contrasts with their ongoing involvement in China”

James Lockhart Smith, head of markets Verisk Maplecroft

“The previous assumption that all EMs in a portfolio can be gradually prodded into alignment with the values of ESG investors no longer holds”

On Biden Team Is Looking to ‘Reconfigure’ China Tariffs – US Treasury Secy, Janet Yellen

“This administration inherited a set of 301 tariffs imposed by the Trump administration that I think really weren’t designed to serve our strategic interests… We are taking a look at those and looking to reconfigure those tariffs in a way that would be more strategic”

 

Top Gainers & Losers – 09-June-22*

BondEvalue Gainer Losers 9 Jun 22

Other Stories

Singapore launches framework for upcoming sovereign green bond issuance

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