APAC CREDIT REVIEW: Chinese deals perform poorly in secondary market
A supportive backdrop in broader risk markets throughout much of the week wasn’t enough to give the seasonally quiet APAC US$ primary market much of a boost, with issuance volume limited to just US$2.457bn or an even smaller US$1.857bn for those who prefer not to include Japanese issuance in their APAC totals.
And aside from a US$600m 4.00% 28-Aug-2027 144A/RegS line from Development Bank of Japan, Inc, all this week’s other nine deals were provided by Chinese issuers or those from related territories, as we continue to wait for our first 144A/RegS or SEC-registered benchmark from an issuer outside those two jurisdictions this month.
And among those nine offshore Chinese transactions, just four could be considered to be ‘benchmark’ deals, including a dual-tranche fixed and floating rate offering from Bank of Communications Financial Leasing Co., Ltd. That was one of two Chinese leasing companies in the primary market this week along with AVIC International Leasing Co., Ltd, both of which made a quick return with their second offshore deals this year.
AVIC International Leasing Co., Ltd, a Baa1/-/A- rated unit of state-owned aerospace and defence conglomerate the Aviation Industry Corporation of China, sold a US$300m 4.625% 27-Aug-2027 senior unsecured line through subsidiary Soar Wise Limited.
The offering priced at a reoffer spread of T+82 on the back of more than US$990m of orders at reoffer, anchored by US$740m of JLM interest, giving a cover ratio of 3.30x. That allowed the spread to be tightened by 43bp from initial price guidance at T+125a, with the reoffer spread indicating that the company paid a new issue concession (NIC) of ca. 5bp, as per our calculations.
Meanwhile, Bank of Communications Financial Leasing Co., Ltd (A2/A-/A) was Keepwell and Asset Purchase Deed Provider for a dual-tranche fixed and floating rate senior unsecured Green offering, issued by Bocom Leasing Management Hong Kong Company Limited and comprising US$250m 4.500% 23-Aug-2027 and US$400m SOFR+75 23-Aug-2027 lines.
We didn’t manage to confirm the final book sizes at reoffer on the two tranches, although demand was such that the fixed rate tranche priced at T+65, from IPG at T+105a, while the floater landed at a discount margin of SOFR+75, revised from IPG at +125a. That pointed to some very competitive funding for the issuer with the NIC on the fixed rate tranche at ca. -3bp (negative) and at ca. 3bp (positive) on the floater, as per our calculations.
Also bolstering its sustainable credentials this week was Bank of China (Dubai Branch), rated A1/A/A, that kept the consistent run of 3-year senior unsecured floaters from Chinese lenders intact with a US$400m SOFR+55 27-Aug-2027 Green bond.
The exercise priced at a discount margin of SOFR+55 having started out at IPG of SOFR+105a, in line with seven other FRNs in the same maturity sold by Chinese banks since the beginning of July. As usual, the JLMs made up the lion’s share of demand at US$695m out of a total US$882m of orders at reoffer, giving a cover ratio of 2.21x.
Deals struggle in aftermarket
Turning to the secondary market performance of this week’s benchmark deals, which does not make for enjoyable reading with all five lines bid outside reoffer by varying degrees.
The fixed rate tranche of the Bank of Communications Financial Leasing Company deal was the worst performer of the week at ca. 14bp wide of reoffer, based on screen quotes on Friday morning, closely followed by AVIC International Leasing that was offside by ca. 12.5bp.
Elsewhere, it was a fairly flat week in the broader Asiadollar cash credit market where investment grade spreads were little changed while their high yield counterparts were modestly weaker, as highlighted by a pair of Bloomberg indices.
The Bloomberg Asia USD IG Bond Index Avg OAS (BAIGOAS) closed out 2.25bp tighter on Thursday at 87.9bp, leaving the index tighter by just 0.13bp compared to a week earlier.
That is also 8.4bp tighter than its recent widest closing level of 98.3bp hit earlier this month, in conjunction with acute broader risk market volatility, which also marked the widest closing level for the IG gauge since early February 2024.
Its high yield counterpart - Bloomberg Asia USD HY Bond Index Avg OAS (BAHYOAS) – tightened by 1.91bp on Thursday to 520.9bp, leaving the index 13.06bp wider week-on-week although still ca. 30bp inside its recent August closing wide.
Excel version: APAC USD Performance Tracker Week Ending 23-Aug-2024
Source: Informa Global Markets (IGM) & Bloomberg
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