The Washington Independent
The Washington Independent
Asia IG enjoys demand rebound

Asia IG enjoys demand rebound

December 27, 2020

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Bonds CR land, GLP china 10 times subscribed despite tight pricing

Last week, Asian investment-grade issuers enjoyed strong demand for US dollar bonds on the basis of subsidizing concerns about rising US interest rates and the relatively limited supply of corporate IGs so far this year.

Last week, six Asian IG corporate issuers sold dollar bonds which raised a total of US$3 billion. The US$800m dual-tranche deal with China Resources Land and GLP China Holdings' debut US$500m dollar bond were covered more than 10 times amid tight pricing, and aftermarket bonds traded tighter.

Books for two of the other sales, while not as impressive, were respectable. The US$500m bond was covered 4.7 times by Sun Hung Kai Properties and 2.7 times by Singapore Power's US$600m contracts.

Final figures were not available for Henderson Land Development's US$300 m problem and Chugoku Electric Power's US$300 m contracts.

Four of the six issuers (CR Property, SHK Properties, Singapore Power and Henderson Land) sold 10-year bonds, another sign of the growing appetite of investors for a longer term after the market reversed its view of the US monetary policy trajectory.

This year, market sentiment is very good, regardless of whether it's investment grade or high yield," a banker said.

While the majority of supply is focused on HY land, a continuation from late last year, we expect more IG issuers to look for an issuance window in the next few weeks in the midst of the constructive market."

According to IFR data, Asian high-yield corporate issuers had sold US$16 billion of dollar bonds before last week, and investment-grade corporate issuers had sold only US$6.2 billion.

Reduced worries about a strong US dollar and full-blown trade war, coupled with proactive growth stimulus initiatives in the region, have promising investment opportunities in Asia, Allianz Global Investors said. "Strong historical returns, improved credit valuations and broadly stable credit fundamentals all indicate that the Asian bond market is well positioned for 2019," said David Tan, Allianz's Asia Pacific fixed income chief investment officer.

Robust demand

A Hong Kong-based fund manager from the fixed income department of a Chinese insurance firm said this year that he was actively purchasing bonds.

There's such a strong demand. Quick cash, which had been missing during last year's downturn, is also coming in,' he said, adding that finding good quality paper in the secondary market was not easy and therefore he needed to focus more on the primary market.

State-backed property developer CR Land, rated Baa1/ BBB+/BBB+, priced a US$300m 3.75 percent 5.5-year tranche last Tuesday and a US$500m 4.125 percent 10-year tranche with many years of rapid growth at Treasuries.

According to data researcher CoreLogic, house prices plummeted 4.8 percent nationally in 2018, with Sydney and Melbourne's prices slumping 11.1 percent and 7.2 percent from their respective 2017 peaks.

In 2019, more declines are predicted, with Fitch forecasting a 5 percent annual drop, the worst expected result of the 24 countries it tracks.

In addition, non-bank lenders rely heavily on the securitization sector for their funding needs because they lack retail deposits and access to the local senior unsecured, covered and offshore bond markets.

The PRS 23 A$22m Class C, A$16m Class Ds and A$9m Class E bonds, with 3.9, 3.9 and 3.7-year WALs, priced 330bp, 430bp and 630bp large one-month BBSW, both 10bp more than the corresponding notes of last November, are among the subordinated tranches. With a 2.7-year WAL, priced at a one-month BBSW plus 730bp, 20bp wide of the previous Class Fs, the PRS 23 A$8m Class F bonds.

The deal was completed with a 5.0-year WAL for A$9m Class G bonds. According to S&P, with 34.9 percent of loans with a scheduled LTV ratio above 80 percent, the portfolio has a relatively high weighted-average scheduled loan to value (LTV) ratio of 72.6 percent.

Borrowers with previous credit deficiency (default, judgment or bankruptcy) were issued around 21.6 percent of the mortgage loans in the portfolio, while around 34.9 percent were extended on an alternative documentation basis.

The ratings agency also states that the portfolio has 3.8 months of very low weighted-average seasoning, with 88.1% of loans originating in the past six months.

For the Australian dollar tranches with CBA and NAB, Westpac was the arranger and joint lead boss.

For the US dollar tranche, Citigroup was the sole lead boss, while for the Green Euro tranche, Societe Generale CIB and Standard Chartered were joint leaders.

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