China HY continued to be peppered with real money selling on Thursday. Sunac dropped 4pts on the news of the $580mm share placement while Yuzhou fell 2pts as details of the exchange emerged.
Yuzhou Group, now Caa2/CCC-, offered new terms on 14 offshore bonds, totalling $5.5 billion. They want to extend 2 issues due this month and remove the cross-default clauses on the other 12, so a default on one bond would not affect the others. If investors do not accept this offer they do not anticipate having sufficient funds to repay bond holders immediately. DaFa Properties is asking for the removal of cross default clauses as it seeks permission from bondholders to extend a $184.5 million bond maturing on Jan 18th by six months.
Recent moves by China' to help struggling developers sell assets to companies on firmer financial footing, such as the announcement that M&AS loans will no longer be counted towards the “three red lines”, were dealt another blow as Country Garden (COGARD BBB- Fitch) failed to generate sufficient demand for a $300mm convertible bond. Country Garden is seen as one of China's higher quality builders and its contracted sales have topped its peers for the last 5 years, Signs that even the stronger firms are struggling to raise capital does not bode well for an industry led stabilisation. Two property developers are intending to raise capital ear-marked for M&A domestically, Poly Property Group and China Merchants Shekou Industrial Zone Holdings,,, which may provide some relief.
China IG slipped after London opened. AMC’s widened 10bps, where they found some support, but the street remains long and was also busy selling new issue and benchmark positions. The short end is still well supported for quality names.
The primary market is producing a steady stream of new issues. China Changtong (Baa1, BBB+) raised $700mm in 2 tranches, a 3yr and a 5yr. Woori Bank (A1/A) issued a $500mm 5yr sustainability bond, JBIC a 5yr Green and Mitsui & Co (A3/A) a 5yr conventional. Singapore Airlines targeted the 7yr area with a $600mm offering at a yield of 3.493%, the main buyers were Asian asset and fund managers. India was represented by a $500mm Indian Rail Finance 10yr at T+185bps, a$400mm JSW Infra 8yr and a $300mm State Bank of India. Malaysia saw CIMB Bank issue a $500mm 5.5yr. Thailand’s Electricity Generating Public has mandated MUFG and SMBC Nikko for a US$ bond.
After a weak morning China Property bond prices have taken another step down this afternoon. In IG COGARD led the move after the convertible news. Longfor Property (Baa2/BBB-) is now as much as 50bps wider.. Further down the credit curve CIFI Holdings (BB-/BB) is trading at 76.00, down 5pts on the day, while Powerlong (B) is down 7pts at around 60.00.
Following Thursday’s sharp rally in US treasuries into the close the market reset lower on light volumes in the Asia trading day, despite a risk-off tone in equity markets (Nikkei -1.3%, CSI -0.85%, Eurostoxx -0.7% and Dow Futures +90pts). Bank of Korea raisesd rates to 1.25% from 1% and BOJ seems to be posturing for a hike as well. on the heels of hawkish Fed rhetoric over the last few days. Before the long weekend there is a bit of a US data dump. Retail Sales, Import/Export data, Industrial Production, Business Inventories and University Michigan.. Have a good weekend.
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