Dollar liquidity supports Asian bond market supply

Borrowers take advantage of positive technical factors, leading to a second day of heavy issuance in the dollar bond market.
Investors have dollars to invest
Investors have dollars to invest

Asian bond markets recorded a second strong day of supply on Wednesday as another trio of issuers took advantage of a firmer market tone and investors' willingness to put their rising dollar inventories to good use.

HNA group's full-service carrier Hong Kong Airlines made its debut, while Korea Midland Power returned to the offshore markets for the first time in two years and the Export-Import Bank of India (Exim) executed India's first benchmark offering of the year. 

All three deals benefited from strong technical factors underpinning Asian G3 bonds, although as fixed-income analysts and bankers point out, these could rapidly disappear if borrowers continue to pile into the dollar market. 

"The fundamental market backdrop is not good, but this is counterbalanced by a supply/demand imbalance in the dollar bond market," one banker commented. "It's a year of heavy redemptions, but corporates are cutting back on their borrowing so less supply is expected."

The banker added, "A second contributory factor is the dollar's rising strength. Investors are definitely not parking money in local currencies, but looking to invest in the dollar market instead."

A second banker said this positive underlying backdrop is not being indiscriminately applied to every credit. "Investors are being very selective about how deep their wallets are for individual credits," the banker remarked. "Scarcity value is what's helping deals to sell."

Sales desk reported this a driving factor behind the positive secondary market performance of Ping An's $1.2 billion two tranche bond, which opened for trading on Wednesday. The $700 million three-year tranche closed 7bp tighter around the 118bp level, while the $500 five-year tranche closed 5bp tighter around the 135bp level. 

India Exim uses rarity value to push pricing

India Exim executed a typically aggressive deal on Wednesday raising $500 million from a five-and-a-half year transaction.

The Reg S transaction was the first major Indian deal since IDBI's $350 million bond in November 2015 and India Exim's first since February 2015.

The Baa3/BBB- rated borrower went out with initial pricing around the 180bp level before tightening to 165bp to 170bp over Treasuries. Final pricing was fixed at 99.585% on a coupon of 3.125% and yield of 3.208% equating to 165bp over Treasuries. 

The peak order book hit  $1.25 billion and bankers said final demand was pretty evenly split between EMEA and Asia. 

"Obviously there has been a drop off in demand from the Middle East for all bonds thanks to falling oil prices," one banker commented. "There's normally a strong bid for Indian bonds, which was absent this time. But what came instead was much stronger interest from Europe and even some high quality offshore US accounts."

Syndicate bankers argued that the deal came flat to fair value, a level justified by India Exim's rarity value, quasi-sovereign status and the bond's EMBI eligibility.

However, on a Treasury spread of 165bp and G-spread of 156bp the deal came through the fair value estimates of Mizuho. In a note to clients, analyst Mark Reade wrote, "With the India Exim bank January 2023 to August 2020 curve worth G+30bp (1bp per month), we see this new deal's fair value at around a G-spread of 160bp and Treasury spread of 168bp."

But he added that "the deal could still perform inside that 'fair' level, given the recent lack of Indian US dollar supply and the tendency of new Indian deals to drag illiquid secondary curves tighter."

Syndicate bankers benchmarked the deal off India Exim's 2.75% August 2020 bond and its 2.75% April 2020 green bond. The former was being quoted on a G-spread of 153bp and the latter on a G-spread of 157bp to give a merged G-spread of 155bp. 

Bankers said India Exim chose a five-and-a-half year maturity because it was cheaper than a five-year on a Libor-equivalent basis. 

Bookrunners for the new transaction were Citi, JP Morgan and Standard Chartered.

Korea Midland fires up new bond

State-owned genco Korea Midland Power also returned to bond markets on Wednesday with a $300 million five-and-a-half year Reg S deal.

The Aa2/AA-/AA- quasi-sovereign credit set off with initial guidance around the 125bp level before tightening to 110bp over. Final pricing was fixed at 99.196% on a coupon of 2.5% to yield 2.658% equating to 110bp over Treasuries. 

Bankers said the peak order book hit $1.3 billion before dropping slightly to $1.2 billion after guidance was revised. 

They added that pricing came flat to fair value. The main comparable is the group's outstanding 2.75% February 2019 deal. This was trading Wednesday on a G-spread of 110bp. 

Other comparables included Korea East West Power's 2.5% June 2020 deal, which was trading on a G-spread of 101bp and Korea Hydro and Nuclear Power's 4.75% July 2021 bond, which was trading on a G-spread of 99bp over. 

"There are a lot of redemptions from Korea this year," one banker commented. "Investors are looking to re-cycle cash."

Bookrunners for the deal were Morgan Stanley, Barclays and BNP Paribas.

Hong Kong Airlines lands bond safely

Unrated Hong Kong Airlines successfully completed a $180 million bond on Wednesday after launching the deal earlier in the week.

The Reg S transaction was able to take advantage of a stronger open during the Asian trading day following surprising positive Chinese trade data, although sentiment reversed during the European trading day after US crude inventories rose, putting more pressure on oil prices.

Bankers said the order book for Hong Kong Airlines three-year deal closed around the $360 million level with participation from 46 accounts. Asian investors were allocated 97% and European investors 3%.

By investor type fund managers took 41% and private banks 59%.

Final pricing was fixed at 99.071% on a coupon of 6.9% to yield 7.25%. The deal had originally been marketed around the 7.5% level.

It was issued in the name of Blue Sky Fliers with a guarantee from Hong Kong Airlines.

The main comparable was Grand China Air’s 5.5% April 2017 bond. On Wednesday this was being quoted on a mid-yield of 6.22%.

“Hong Kong Airlines caught a good window for the deal as sentiment improved after China’s trade data beat expectations,” one banker commented.

Guotai Junan International, JP Morgan, BOC International, Orient Securities and Hong Kong International Securities were bookrunners.

A second high yield borrower will also be hoping sentiment remains firm on Thursday. Hong Kong-listed Hsin Chong Construction Group is marketing a three-year note around the 8.5% level.

Bookrunners are Credit Suisse, UBS, Bocom International, China Merchants Securites and Nomura.

According to Dealogic, the company sold two US dollar-denominated bonds in 2015 raising $300 million.

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