A slew of G3 bond issuers have surfaced in recent days on the back of improving emerging market confidence, including China Aluminum International Engineering and New World Development.
This week, bond investors continue to cover short positions in the Asian G3 debt market – a trend that began last week – following an emerging market sell-off post-Chinese New Year and as fears of an accelerated Fed tapering continue to ebb after mixed US data, highlight syndicate bankers.
China Aluminum International Engineering, for example, is the latest to arrange a series of fixed-income investor meetings, starting this week, following in the footsteps of New World Development, which has organised similar roadshows that commenced on February 17.
Last week, China Resources and Far East Horizon hired banks to arrange a series of fixed-income investor meetings, beginning on February 14 and 17 respectively, according to sources.
“Asian credit spreads tightened at the close of the week as institutional investors and private banks covered shorts on a slight improvement in demand after profit-taking dragged the market down mid-week,” said Amit Sheopuri, co-head of Asia debt origination at Citi.
High-yield cash spreads in Asia tightened by 10bp last week, whereas investment grade cash spreads in the region tightened by 4bp, according to Morgan Stanley.
Economic releases out of the US were on the weak side. Retail sales fell 0.4% in January compared to consensus for no change, while initial jobless claims came in 9,000 above the 330,000 forecast, suggesting the likelihood the Fed will accelerate the reduction of its bond purchase programme is slim.
There was better news on China as data showed banks in the country disbursed the highest volume of loans in any month in four years in January, a surge that suggests the world's second-biggest economy may not be cooling as much as some fear.
Chinese financial institutions made Rmb1.32 trillion ($218 billion) worth of new renminbi loans in January, beating a Rmb1.1 trillion forecast and nearly three times December's level.
Other positive news that has helped support the market include Bank of Japan’s (BoJ) move on February 18 to maintain asset purchases and boost its lending programmes.
“These lending facility moves add an estimated ¥5 trillion to ¥6 trillion [$49 billion to $59 billion] to overall financial system liquidity with near-term impact on economic growth,” said Uwe Parpart, head of research at Reorient Group, a Hong Kong-based financial services firm. “Adding ¥5 trillion to ¥10 trillion in added bond purchases would have given the BoJ a bigger bang for the buck.”
For February to-date, there have only been six deals with a total volume of $3.2 billion in the Asia ex-Japan G3 space, compared to January’s total monthly volume of $26 billion with 45 transactions, according to Dealogic data.
New issuers on the block
On February 18, China Aluminum International Engineering mandated CLSA and Morgan Stanley to arrange meetings in Singapore and Hong Kong. A Reg-S dollar-denominated senior guaranteed perpetual offering may follow subject to market conditions. The notes are expected to be rated BB by Standard & Poor’s.
On February 17, New World Development hired HSBC, JPMorgan and UBS to arrange the series of fixed-income investor meetings. A Reg-S dollar note issuance may follow subject to market conditions.
On February 14, China Resources Land mandated HSBC as sole global coordinator and Agricultural Bank of China International, Bank of America Merrill Lynch, DBS, HSBC and UBS as joint lead managers and bookrunners for its potential Reg-S dollar-denominated transaction. The notes are expected to be rated Baa1 by Moody’s and BBB+ by Fitch.
Also on February 14, Far East Horizon hired HSBC and Standard Chartered to arrange a series of investor meetings, which could lead to a proposed offering in the Reg-S dollar space. The notes are expected to be rated BBB- by S&P.
