Investment grade Asia bonds strike back

KNOC, Wharf Finance, Bank of Baroda and China Overseas Grand Ocean collectively raised $2.55 billion on Wednesday, while Korea Gas, China Overseas Shipping Finance and Indian Railway Finance arrange investor roadshows for dollar notes.
Other corporates such as Indian Railway Finance have also arranged bond investor roadshows.
Other corporates such as Indian Railway Finance have also arranged bond investor roadshows.

G3 bond markets in Asia ex-Japan started the year with a mighty bang, and this not only applies to the high-yield sector but also the investment grade area, which has already seen a slew of issuance in the market.

On Wednesday, Korea National Oil Corp (KNOC), Wharf Finance, Bank of Baroda and China Overseas Grand Ocean collectively sold $2.55 billion worth of bonds, while, on Thursday, Korea Gas Corp mandated banks to arrange a series of fixed-income investor meetings.

Other corporates such as China Overseas Shipping Finance and Indian Railway Finance have also arranged bond investor roadshows on Wednesday and Monday respectively. Dollar bond issuances could follow subject to market conditions.

“It’s just part of their ongoing effort to extend their debt maturity profiles as well as to increase their financial flexibility,” a Singapore-based credit analyst told FinanceAsia. “At this point in time, most of the companies are within their current ratings so it’s fine for them to raise more debt while the market remains supportive.”

The flood of Asian bond issuance came about after investors reduced bullish expectations for economic growth in the US after employers added far fewer jobs in December than traders and economists expected, resulting in a fall in US Treasuries (USTs).

The yield on the benchmark 10-year note fell to a three-week low touching 2.831% on Monday, after registering the largest one-day fall since October on Friday on news that US employers added only 74,000 workers in December, far short of the 196,000 rise forecast by analysts polled by Reuters.

This is much lower compared to the 10-year yield at the end of last year, which was hovering around the 3.03% level, the highest since July 2011. This has, as a result, encouraged issuers to front-load most of their bonds before rates start trending up towards the end of the year.

“This is a window where rates have not gone that high yet and it does get a bit quieter later on as the Chinese New Year comes and you get closer to your announcement dates – when you aren’t allowed to issue,” said a Hong Kong-based head of debt capital markets for Asia. “The choice is to issue now or pull back for some time, so people are choosing the former.”

Barclays and Standard Chartered predicts that 10-year US Treasuries could touch 3.5% by year-end.

The Asia ex-Japan investment grade G3 bond space has seen $5.25 billion worth of bond issuance from 10 deals year-to-date, which is 37% higher than 2013’s $3.83 billion from nine deals during the same period, according to Dealogic data.

Chinese SOEs next

Although the investment grade space has been dominated by Korean and Hong Kong-based issuers, Chinese state-owned enterprises (SOEs) will be next in the pipeline, highlight bankers. However, the issuance from these credits tends to be back-ended in the first quarter because of the Chinese New Year, which falls on January 31 to February 3 this year.

Syndicate bankers also note that investors will become more discerning and selective towards bonds issued by Chinese SOEs due to rising concerns around the surge in local government debt in China.

“Investors will be selective in the sense of whether the bond issuer has a strong explicit support from the government or whether the support is from the municipal or provincial government,” said the Singapore-based credit analyst. “But, once this noise [around local government debt] settles down, we will see some of this bond issuance coming in.”

Premier Li Keqiang is cracking down on less-regulated shadow banking activities, while the People’s Bank of China (PBoC) engineered a cash crunch in June 2013 to push deleveraging in the world’s second-largest economy.

China’s audit of local governments exposed an increased reliance on shadow banking in December, swelling the risk of default on Rmb17.9 trillion ($3 trillion) of debt. Debt including contingent liabilities rose about 13% in the six months through June, based on figures reported by the National Audit Office. That followed a 48% increase over the previous two years.

Latest issuers

KNOC raised a $1 billion dual-tranche dollar bond – split equally between a five- and 10-year tranche – on Wednesday. The A1/A+/AA- rated notes have coupons of 2.75% and 4% for the five- and 10-year tranche respectively. HSBC, Barclays, Citi, Deutsche Bank, Korea Development Bank and UBS were the joint bookrunners of KNOC’s deal.

Hong Kong-based real estate developer Wharf Holdings raised a $400 million five-year senior unsecured note at a coupon of 3.5%, according to a term sheet. BNP Paribas, DBS Bank, HSBC and Standard Chartered were the joint bookrunners of the A- rated deal.

China Overseas Grand Oceans – its second attempt to raise a bond – sold a $400 million five-year note at a coupon of 5.125%. Bank of America Merrill Lynch, DBS, ICBC International, Macquarie and UBS were joint bookrunners of the Baa2/BBB-/BBB rated transaction.

Bank of Baroda – acting through its London branch – sold a $750 million 5.5-year fixed-rate bond at a coupon of 4.875%. Bank of America Merrill Lynch, Barclays, Citi, JPMorgan and Standard Chartered were joint bookrunners of the Baa3/BBB- rated note.


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