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Bond Market News
Cemex, FAB, NWD, Times Among New $ Bonds Priced; CFLD $ Bonds Continue to Slide; Evergrande Paid a Premium on Buybacks in 4Q20
January 8, 2021
US equities rallied as the S&P inched higher by 1.5% with financials and tech rallying over 2.5%. JP Morgan Chase shares rallied 3.3% while Tesla was up ~8% (with Elon Musk overtaking Jeff Bezos as the wealthiest person). US ISM non-manufacturing for the last month printed at 57.2 vs. forecasts of 54.6 and weekly jobless claims fell by 3k to 787k adding to the positive sentiment. US senator Chuck Schumer and House Speaker Pelosi called for Trump’s removal following the violence at Capitol Hill. The official Electoral college count confirmed Joe Biden’s win. US 10Y Treasury yields firmed further to 1.10%.
US IG CDS spreads were 1.5bp tighter and HY was 8bp tighter. EU main and crossover CDS spreads widened 0.1bp and 0.7bp respectively. China’s Hebei region has gone into a lockdown after a new wave of infections were reported. Spreads on some of Alibaba’s and Tencent’s bonds widened 10-20bp after reports that the Trump administration may bar investments in the two companies. Many of Tencent’s bonds were down ~3%. The Asian primary markets have taken a breather with no new deals today after a record start in dollar bond sales from the APAC region, with about 40 borrowers pricing more than $25bn of debt issues so far this week. Asia ex-Japan CDS spreads tightened 0.55bp and Asian equities have opened ~0.6% higher.
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New Bond Issues
Mexican cement company Cemex raised $1.75bn via a 10.5Y bond at a yield of 3.875%, 12.5bp inside initial guidance of 4% area. The bonds have an expected ratings of BB- in line with the issuer. Proceeds will be used for general corporate purposes, including to refinance debt. The bonds were priced 37.5bp over their 5.2% 2030s that currently yield 3.5% in the secondary market.
BOC HK Branch raised $500mn via a 3Y transition bond at a yield of 0.933% or T+72bp, 38bp inside initial guidance of T+110bp area. The Chinese property developer’s bonds have expected ratings of A1/A/A, and received orders over $2.1bn, 4.2x issue size.
Hong Kong-listed Chinese hotpot restaurant operator Haidilao International raised $600mn via a 5Y bond at a yield of 2.181% or T+175bp, ~50bp inside initial guidance of T+225bp area. The bonds have expected ratings of BBB/BBB, and received orders of over $6.1bn at the time of final guidance, ~10x issue size. Asian investors bought 94% of the bonds and EMEA 6%. Asset managers and fund managers received 72%, banks and financial institutions 23%, and private banks and corporates 5%. The Hong Kong-listed Chinese hotpot restaurant operator’s proceeds will be used for general corporate purposes.
China Huarong Financial Leasing raised $300mn via a 363-day note at a yield of 1.9%, 45bp inside initial guidance of 2.35% area. The bonds have expected ratings of A- by Fitch, and received orders over $1.1bn, 3.7x issue size.
New Bond Pipeline
- Fujian Zhanglong Group for $ bond
- SK Hynix $ bond three-tranche including green bond
- PFC $ bond
- REC $ bond
- Beijing Capital Group $ senior bond/sub perp
Rating Changes
- WPX Energy Inc. Issuer Credit Rating Raised To ‘BBB-‘ BY S&P, Then Withdrawn On Close Of Acquisition By Devon Energy
- Moody’s downgrades Saka Energi to B2; reviews ratings for further downgrade
- Mitsubishi Heavy Industries Outlook Revised To Negative BY S&P On Performance Prospects; ‘BBB+’ Rating Affirmed
- Fitch Assigns ‘BBB-‘ First-Time Ratings to Perrigo Company plc and Perrigo Finance Unlimited Company
- Correction: Fitch Affirms Modern Land at ‘B’; Outlook Stable
2020 Bond Market Round Up – China
The best and worst performing bonds from China in 2020 are a mixed bag. Among the best performers, Beijing-based privately-owned investment company Oceanwide topped the list with its 14.5% 2021s up 22% through 2020. Interestingly, another bond from Oceanwide, 12% 2021s, made it to the worst performing bonds list, losing over 15%. Oceanwide has been in the news over its agreement to buy US-based insurer Genworth Financial for $2.7bn, which was announced back in 2016 but has still not concluded. The transaction may not go through after the two companies decided not to extend the deadline beyond December 31, 2020 after 16 extensions prior to that. Next on the best performers list is distressed lithium producer Tianqi’s 3.75% 2022s that rose 21% through 2020 as it received a $1.4bn lifeline from Aussie miner IGO in December, which catapulted the bonds from a low of ~38 cents in November to ~80 cents on the dollar currently.
Other prominent names that made it to the best performing bonds list include China sovereign’s 4% 2048s, state-owned Three Gorges, Huarong, State Grid and real estate developers China South City, Country Garden, Future Land, Seazen, KWG, Evergrande and Vanke.
Distressed names such as Tuspark and Hilong along with local government backed corporates Caiyun International, Haiguo Xintai and Zhongyuan Asset Management topped the worst performing bonds list losing ~20-30% in 2020. Others that made it to the list include real estate developers China Fortune Land (CFLD), R&F Properties (Easy Tactic), Evergrande, Greenland and China Jinmao.
Among the largest corporate deals from Chinese issuers, financial institution perpetual bonds led the pack with ICBC, Bank of China and Bank of Communications (BOCOM) issuing over $2.8bn each. China sovereign was next on the list with both, their October dollar bond issuances and November euro bond issuances among the largest last year. Other prominent names on the list include Tencent, Pinduoduo, China Construction Bank (CCB), Evergrande and Sinopec. Meituan’s debut dollar bond issuance also figured among the largest deals.
In case you missed it, we summarized the bond market in terms of best/worst performing bonds, largest deals and issuance volume for global and Asian dollar bonds in 2020. You can read the full report via the button below:
Property Developers Including NWD, Times and Central China Raise $1.2 Billion via Bonds
Continuing the wave of new bond issues from real estate developers, Thursday saw five new bond deals priced.
Times China Holdings’ 6NC4 bonds have expected ratings of B1/B+/BB- and received orders over $2.4bn, ~6.9x issue size. Proceeds will be used for offshore debt refinancing. Asia took 79% of the bonds, offshore US 15% and Europe 6%. Fund managers received 69%, sovereign wealth funds and official institutions 20%, private banks and corporates 6%, and banks 5%. Proceeds will be used for offshore debt refinancing.
RiseSun Real Estate’s bonds have expected ratings of BB- by Fitch, and received orders over $1.45bn, 4.8x issue size. RongXingDa Development (BVI) is the issuer and the Shenzhen-listed parent company is the guarantor. Proceeds will be used for debt refinancing, business development and other general corporate purposes.
Central China Real Estate’s 4.5YNC2.5Y green bonds have expected ratings of BB- by Fitch and received orders over $1.06bn, ~4.08x issue size.
New World Development’s (NWD) 10Y sustainability-linked bond (SLB) was unrated and received orders over $1bn, 5x issue size. Asia Pacific took 82% and EMEA 18% of the bonds. Around 79% of the bonds were allocated to ESG-focused investors, including some quasi-sovereign institutions. Asset managers and fund managers booked 76%, private banks 9%, insurers 13%, and banks and others 2%. The issue was the first dollar SLB offering in Asia ex-Japan. The issue was also the first dollar SLB by a property developer and the first unrated SLB issue globally.
Zhenro Properties’ 363-day senior note was rated B1/B/B+. ZhenAn Glory Investment is the issuer and the Hong Kong-listed parent company is the guarantor. Proceeds will be used for general corporate purposes.
FAB Raises $500 Million via 5Y Sukuk
UAE’s largest lender First Abu Dhabi Bank (FAB) tapped the international bond markets, following Dubai-based rival Emirates NBD’s $750mn issuance earlier this week. FAB raised $500mn via a 5Y sukuk at a yield of 1.411%, or Mid-Swaps+90bp, 10-15bp inside initial guidance MS+100-105bp. The bond have expected ratings of Aa3/AA- and were issued under a $3.5bn Trust Certificate Issuance Program. The issuer is FAB Sukuk Co. Dubai Islamic Bank PJSC, Emirates NBD Capital, First Abu Dhabi Bank PJSC, Islamic Corporation for the Development of the Private Sector, KFH Capital KSCP, NCB Capital and Standard Chartered Bank were the joint lead managers for the new bond issue.
For the full story, click here
Sell-Off in CFLD’s Dollar Bonds Continue With Some Bonds Down As Much as 11%
The sell-off in China Fortune Land’s (CFLD) dollar bonds continued on Thursday with a greater magnitude as certain bonds fell as much as 9-11%. This comes after its dollar bonds fell 3.5-6% on Wednesday following concerns over CFLD’s ability to meet profit targets set by Ping An Asset Management. CFLD’s 8.75% 2022s took the hardest beating on Thursday, falling 10.65% to 76.7 followed by its 8.05% 2025s and 6.92% 2022s that were lower by 8.9% and 6% to 68.4 and 80.5 cents on the dollar respectively.
Evergrande Chose to Buyback Shares at a Premium in Nov-Dec Over Paring Debt
China Evergrande had resumed a buyback of its shares in November-December 2020 at a premium, spending HKD 1.3bn ($168mn). But the stock has gone lower by 12% since their last buyback on December 2, 2020. As per Bloomberg’s calculations, between late October and early December, the world’s most indebted developer repurchased shares ~3.7% higher than the average price. That is the widest premium for its stock repurchases since at least 2016, as per Bloomberg.
“The buybacks may not ease investor concerns. Weakness in profitability and long-term growth could still weigh on sentiment” said Bloomberg Intelligence analyst Kristy Hung. “Selling shares to investors at a lower price, then buying shares back at a higher price just weeks after that seems to be a highly irregular capital strategy for a company. Doing so suggests the company is conducting capital activities for reasons which are not strictly fundamental”, said Travis Lundy, a special situations analyst. Evergrande’s dollar bonds have recovered slightly in 4Q of last year. Its 8.75% 2025s are up ~16% to 81.8 from September 25 lows of 70.3 and their 10.5% 2024s are up 17% to 90.25 over the same period. The company has been trying to reduce its ~$120bn debt pile but some expect them to return to the dollar bond market, joining a host of other Chinese real estate companies that have sold new bonds this week.
For the full story, click here
Boeing Off to a Rough Start in 2021; Structural Flaws and Criminal Charges to Cost $10 Billion
Boeing was off to a rough start in 2021 as structural flaws have been revealed in its 787 Dreamliner jets, which has a potential of draining $7.5bn from the plane makers cash flows. The new structural flaw revealed on its Dreamliner will result in higher inspection times and thus will slow the pace of deliveries, especially as the company has ~75 Dreamliners in storage that will have to undergo the scrutiny. Despite the vaccine news and the upbeat deliveries of the 737 Max after it was cleared by US Federal Aviation Authority (FAA), UBS Group AG warned that “Boeing could be forced to record a reach-forward loss with its earnings later this month as it slows Dreamliner output and consolidates production in South Carolina.”
In another news, a US Federal Court has charged Boeing with conspiracy to defraud the United States, which will cost the company ~$2.5bn. U.S. Attorney Erin Nealy Cox for the Texas court said, “The misleading statements, half-truths, and omissions communicated by Boeing employees to the FAA impeded the government’s ability to ensure the safety of the flying public”. According to the FT, Boeing had already put aside ~$1.8bn, according to an SEC statement, and will add another $744mn charge in 4Q2020.
Last year had been challenging for Boeing due to the pandemic and the grounding of the single aisle Max 737 since 2019 after the two deadly crashes. Boeing could deliver only 118 planes till Nov end against its rival Airbus which managed ~560 deliveries despite the pandemic. Boeing’s bonds had been seeing an uptrend since November 2020 after the 737 Max was cleared to fly again. Its 5.93% 2060s were up 0.76 trading at 134.93 while its 3.95% 2059s were down 0.68 trading at 101.54.
Oxley Raises S$106 Million via Convertible Bonds Sold to Hong Kong Based PE Firm
Singapore’s Oxley Holdings has raised $80mn via an issuance of 2Y convertible notes (with an option to extend by 1Y) sold to a Hong Kong based private-equity (PE) firm, Dignari Capital Partners (DCP). The convertible notes carry a coupon of 4.5% and an option of conversion to shares at a ~15% premium to the volume-weighted average price per share 10 trading days prior to the date of the agreement. According to The Business Times, the conversion to equity could dilute the group’s loss per share to S$0.06 from S$0.07 cents previously. The proceeds from the notes will be used towards the working capital and general corporate purposes.
The property developer stated in its regulatory filing, “it believes that DCP, as a strategic investor with over $1 billion in assets under management, will strengthen the group’s financing capabilities in the future.” Ching Chiat Kwong, chairman and chief executive of Oxley Holdings said that ” I am confident that DCP Funds’ investment will position the company for our next phase of growth, where we launch into our key overseas projects.” Oxley’s 6.375% 2021s and 6.5% 2023s were up 0.51 and 2.6 respectively to trade at 99.01 and 81 cents on the dollar while its 5.7% 2022s were down 0.23 at 92.26.
For the full story, click here
Term of the Day
Kangaroo Bond
Kangaroo bonds are bonds issued in Australia by non-Australian issuers denominated in Australian Dollars. These bonds give foreign issuers access to another country’s capital markets and helps them diversify their capital base and could reduce borrowing costs. Although, the currency risk is borne by the issuer. The European Investment Bank (EIB) recently raised A$1.25bn ($970mn) via a 6.5Y climate awareness Kangaroo bond.
Talking Heads
“I could see, potentially, that occurring at the very end of 2021 or early 2022. But it is all going to depend on the course of the economy, which will depend on the course of the virus,” Harker said. “It could cause disruption in the markets if we try to do it too soon,” he said. “So, I have many degrees of caution on this, to just be steady as she goes until we start to really see the economy healing.” “I’m expecting the fourth quarter of last year to show modest growth, before a significant slowing in the first quarter of this year — possibly even negative growth,” he said Thursday. “Growth should be strong in the second half of the year, and through 2022, before a light tapering in 2023.”
On rising bond yields and inflation expectations as a possible win for the Fed
Thomas Barkin, Richmond Federal President
“I am encouraged to see the rise in market indicators of inflation expectations. … That is what we are trying to support,” said Barkin.
James Bullard, St. Louis Fed President
“The ingredients for higher inflation are in place,” said Bullard. “You have very powerful fiscal policy in place and perhaps more to come.” “You have a Fed that … wants to temporarily have inflation above target. You have the economy poised to boom at the end of the pandemic,” once the impact of new coronavirus vaccines is felt, Bullard said.
Patrick Harker, Philadelphia Fed President
“We are looking at a long period where the fed funds rate will stay at essentially zero,” Harker said. He added that he saw no signs that “inflation is going to go out of control.”
“Last year’s COVID ‘dash for cash’ was a wake-up call as to the scale and urgency of this work,” said Hauser. “We should certainly be wary of drawing overly direct conclusions from the COVID pandemic, given how truly unique the circumstances have been,” he said. “But many of the vulnerabilities in financial markets exposed last spring have been staring us in the face for some time – and will only grow in importance in the years ahead, as households and firms come to rely ever more closely on such markets to care for their savings, and fund investment.”
“The public authorities cannot afford to ignore such dysfunction if it reaches a scale that threatens financial stability,” he said. “But equally we cannot rely on central bank medicine of the scale and duration seen in 2020 every time we see an inflammation.”
On Beijing’s orders for Chinese media to censor coverage of Alibaba probe
According to two people who read the China government’s directive
“If any company announcements oppose the official stance, do not publish, do not re-post, do not quote foreign media,” the directive said.
Xiao Qiang, a research scientist at the University of California at Berkeley School of Information
“This directive is severe and unusual,” said Mr Xiao. “The language [of the directive] is quite similar to the directives on ‘very important political event’ reports such as the trial of Bo Xilai,” he added. “The investments of Ma’s companies are directly associated with some of China’s most powerful political families. The fact that this time he is getting into trouble with the Chinese state likely has high politics in the background, not just because he made one speech which may have hit Xi [Jinping, China’s president] or some other party official’s nerve,” said Mr Xiao.
On Euro zone bond yields edged up as US Treasuries yields jump – according to Commerzbank analysts
“Euro zone bond markets continue to post a strong start to 2021,” Commerzbank analysts said. “Regarding Bunds/outright valuations, the transatlantic spread and U.S. dollar break-evens continue to absorb the bulk of U.S. reflation dynamics.” “In addition, spreads continue to trade with a tightening bias,” Commerzbank said.
Top Gainers & Losers – 8-Jan-21*
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