Yunnan Comm, Korea Midland Launch Bonds; Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and Losers

US markets ended the rather volatile week lower as Amazon shares slid post a miss on Q2 numbers. However, the markets ended higher for the sixth consecutive month. S&P and Nasdaq ended 0.5% and 0.7% lower on Friday. Consumer Discretionary and Financials pulled the markets lower by 2.8% and 0.7% respectively while Materials and Real Estate up ~0.4% provided support to the markets. The  S&P and Nasdaq ended the month ~2.3% and 1.2% higher. BNP Paribas reported solid 2Q earnings with a 26% jump in net profits (details below). HSBC, General Motors and Alibaba will be reporting earnings this week. FTSE and DAX were down 0.6% and CAC was down 0.3%. Saudi TASI and UAE’s ADX were up 0.5% and 1% respectively. Brazil’s Bovespa dropped 3.1%. Asia Pacific stocks were up to a solid start – Nikkei, Shanghai and HSI were up 1.9%, 1.5% and 1.1% while Singapore’s STI was down ~0.3%.

US Q2 GDP accelerated 6.5% on an annualized basis against an estimate of 8.4%. Eurostat Euro-area GDP grew by 2% in Q2 vs. a decline of 0.3% in Q1. The CPI in July came in at 2.2% vs. 1.9% last year and against a forecast of 2% and unemployment rate was at 7.7%. US IG CDS were 0.8bp wider and HY spreads widened 5.7bp. EU Main and Crossover spreads widened 0.4bp and 3.5bp respectively.  Asia ex-Japan CDS spreads were 0.6bp wider.

Luso International Banking raised $248mn via a Perpetual non-call 5Y (PerpNC5) at a yield of 5.5%, 30bp inside initial guidance of 5.8% area. The bonds are unrated. The bonds have a non-viability loss-absorption feature and are subject to Macau’s insolvency and other applicable laws. China’s Xiamen International Bank is the largest shareholder of the Macau bank Luso with a 49% stake. Proceeds from the proposed deal will be used to strengthen Luso International’s capital base and fund development and the growth of its operations. The bonds will qualify as AT1 of the Chinese parent Xiamen as Macau has not yet adopted the Basel III regime.

New Bonds Pipeline

• Kasikornbank hires for $ AT1 offering

• China Ping An Insurance Overseas (Holdings) hires for $ bonds; calls today

• Korea Midland Power hires for $ 5Y

• HDFC Bank hires for $ AT1

Rating Changes

• Moody’s downgrades El Salvador’s rating to Caa1, maintains negative outlook
• Moody’s upgrades EnQuest’s rating to B3 and high yield notes to Caa1; stable outlook
• Moody’s changes the outlook on Siemens to stable; affirms its A1 issuer rating
• Moody’s affirms KEB Hana Bank’s ratings; changes outlook to positive
• Moody’s extends its review for downgrade on Huarong AMC
• Fitch Upgrades NongHyup Bank to ‘A’; Outlook Stable
• Fitch Upgrades 4 Tranches of Unicredit Italian RMBS Transactions; Affirm Others
• American Airlines Group Inc. ‘B-‘ Issuer Credit Rating Affirmed, Outlook Now Stable; Selected Ratings Raised
• Democratic Republic of the Congo Outlook Revised To Positive From Stable; ‘CCC+/C’ Ratings Affirmed
• Xinyuan Real Estate Outlook Revised To Negative As Delayed Financial Statements Raise Refinancing Risk; Rating Affirmed
• Fitch Assigns Aydem Renewables and Notes Final ‘B+’ Ratings
• India-Based Summit Digitel Assigned ‘BBB-‘ Rating With Stable Outlook; Proposed Senior Secured Notes Rated ‘BBB-‘

Term of the Day

Greenwashing

Greenwashing is a term used to describe corporate/government marketing practices that emphasize on its environmentally-friendly initiatives that are, in truth, vastly overstated. While this is not a new term, its relevance has increased over the past few months with the surge in green, social and sustainable bond issues from corporates and sovereigns. Dutch asset manager NN Investment Partners expects the size of the green bond market to swell from €660bn ($776bn) currently to €2tn ($2.3tn) in 2023. However, it found that 15% of such bonds are issued by companies “involved in controversial practices that contravene environmental standards”. The term greenwashing was coined by environmentalist Jay Westerveld in 1986 and originates from his visit to the Beachcomber Resort in Fiji in 1983. He noticed that the resort had placed a note beside the towel stand that encouraged patrons to reuse towels to reduce ecological damage. However, looking at the ongoing construction of new bungalows and vast amounts of wastage at the resort, it was clear to Westerveld that the resort did not care much for the environment and were simply looking to reduce its expenses associated to towel cleaning.

Talking Heads

On trillions of negative-yielding debt vindicating Europe’s bond bulls

Chris Attfield, HSBC strategist

HSBC’s forecast “was based on the assumption that there would be no rate hikes before the end of 2023.” “This is now mostly priced into the market, helped by the new ECB forward guidance.” “The new forward guidance criteria for rate hikes would not have been met at any point since 2008.”

Floortje Merten, ABN Amro strategist

“The further outpricing of rate hikes and the more optimistic sentiment would then be two opposing factors and that could keep Bund yields around these low levels,” Merten said.

On the drivers of growth in sustainability-linked debt financing

John Lee, head of Greater China global banking at UBS
“2021 will very likely be a milestone year for Greater China ESG [environment, social, governance] bond issuance, as we have not only seen a record number of deals and volume, but more importantly we have also seen a record number of debut borrowers, as well as innovative structures such as sustainability-linked bonds,” he said.

Alvin Yeo, UBS’ head of sustainable finance and leveraged debt capital markets in Asia

“Here, unlike conventional instruments, a borrower is not restricted in the use of proceeds to finance a green or social project.” “The focus is on the ambitiousness of the sustainability performance targets and credibility of the strategies to achieve them.”

On the overwhelming response for Hong Kong’s silver bonds – Arnold Chow, deputy general manager of the personal digital banking product department at Bank of China (Hong Kong)

“Most investors mainly bought the bonds from our branch network. However, we have also witnessed more people using mobile phones to buy the bonds, which was three times that of last year.” “The low-interest rate environment explains why so many people like to invest in Silver Bonds as a long-term investment; it’s low risk and offer higher returns than bank deposits,” Chow said.

On the world’s biggest pension fund cutting US bond weighting by record -Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank

“GPIF has a large influence over the investment decisions of other pension funds in Japan.” “What it does has an impact in the market.” “Current yield levels don’t compensate investors enough to take foreign-exchange risks,” she said.

 

Top Gainers & Losers – 02-Aug-21*