Advanced Theory & Practice of Bonds

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October saw another poor month for bond investors with 81% of dollar bonds in our universe delivering a negative price return ex-coupon, continuing the woes from September where 86% of the bonds were in the red. This comes after June, July and August that saw 54%, 52% and 47% of dollar bonds trading up in the months, respectively. Both investment grade (IG) and high yield (HY) bonds performed poorly, with 86% and 75% of the bonds in the red respectively.

%Returns

The month also saw a slew of downgrades across the Chinese property sector across the three major rating agencies Moody’s, S&P and Fitch. The interactive chart below shows how much and how quickly Chinese developers have been downgraded over the past few months. Move the slider below the X axis to see how ratings have changed over the months.

The fall in investment grade rated bonds’ prices was in part due to the selloff in Treasuries with the 10Y yield widening 8bp in October. Among the prominent names were Huarong’s dollar bonds which delivered a solid 5-7% return followed by Meituan, Repsol and General Electric (GE). In terms of the losers, Wen’s Foodstuff led the losses, down 8-11% followed by IG-rated Chinese property developers Shimao, Sino-Ocean, Country Garden & Jinmao that saw their bonds trade 3-6% lower.

 

High yield bonds had a somber month as well with 75% of junk dollar bonds in our universe ending lower in October. The losers were once again dominated by Chinese real estate developers, whose bonds sold-off after Fantasia and Modern Land defaulted on their dollar bonds. However, Evergrande and Greenland were outliers – Evergrande’s bonds recovered some of the losses from the previous months after it managed to make payments on two of its dollar bonds within the grace period. Greenland on the other hand reported promising Q3 results where revenues rose 30% to RMB 144.1bn ($22.6bn) with the developer saying that it will soon meet the ‘net-debt to equity’ metric among China’s three-red lines ratios. For more on the gainers and losers, scroll down.

Price Return of HY Dollar Bonds - October 2021-PNG

 

Issuance Volume & Largest Deals

Global corporate dollar issuance volume stood at $242,2bn, down 25% MoM and 1% YoY. Issuance volumes were lifted by US and Europe which saw large issuances by several corporates and banks even as APAC ex-Japan & Middle East G3 issuance volumes dipped.

APAC ex-Japan & Middle East G3 issuance stood at $37.8bn, down 30% vs. last October’s issuance of $54.4bn, and 16% lower than September’s issuance of $45.1bn. While IG issuance from the region increased MoM from $27.5bn to $31.7bn, HY issuances sank to a mere $1.9bn vs. $4.2bn in September. HY issuances were the lowest since August 2021’s $1.8bn, which saw the lowest deal volumes since May 2020’s $1.2bn.

The largest deals last month were led by AerCap’s massive $21bn nine-part deal to help fund its acquisition of GE Capital Aviation Services (GECAS). This was the second largest issuance this year after Verizon’s $25bn jumbo deal in March. Besides major US banks accessed capital markets post their earnings – Goldman Sachs raised $9bn via a jumbo five-tranche deal, Morgan Stanley raising $5bn via a two-part deal, Citi raising $4bn via a three-trancher, and BofA raising $3.25bn in a single issuance. Other large issuances included Medline’s $7bn dual-trancher, the largest junk-bond deal since 2015, Charter Communication’s $4bn, Peru’s $4bn and PepsiCo’s $3bn three-part deals each.

In the APAC & Middle East region, the largest deals were led by TSMC’s $4.5bn and Chinese Sovereign’s $4bn four-tranchers and by UAE’s $4bn three-trancher. UAE’s issuance was the first by the Emirati nation which otherwise had its states issue dollar denominated debt before. Other large issuances included ICBC’s $2.05bn dual-trancher, Macquarie’s $1.25bn deal.

Largest_APACME

 

Top Gainers & Losers

Zhengton Auto’s dollar bonds were among the biggest gainers last month after it launched an offer to repurchase all its outstanding $173mn 12% 2022s at 101 following a change of control (CoC) event. The CoC event was triggered after state-owned Xiamen ITG Holding Group became the Hong Kong-listed luxury car dealer’s single largest shareholder with a 29.9% stake. Besides, Sri Lanka’s dollar bonds jumped on the back of preparing agreements for a $3.6bn credit line for oil imports from Oman and that the nation will receive close to $1bn of Foreign Direct Investment (FDI) in 2021 despite the pandemic. In a rare positive among Chinese property developers, Greenland Global’s dollar bonds rallied after Q3 results where revenues rose 30% to RMB 144.1bn ($22.6bn) with the developer saying that it will soon meet the ‘net-debt to equity’ metric among China’s three-red lines ratios.

On the losers side, yet again, Chinese property developers dominated the list – Modern Land (China) defaulted on its dollar bonds after it called off its consent solicitation. Fantasia defaulted on its $205.656mn 7.375% bond due October 4, the first developer to default after Evergrande’s missed coupons in September. Yango was downgraded by Fitch on October 28 and its dollar bonds have crashed over 70%. Other developers’ whose bonds fell included Kaisa, China Aoyuan, Jiayuan, Ronshine, Xinyuan and their like that have seen a slew of downgrades.

Global G&L

APACME G&L

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