Energy stocks bounced 3.6% as oil prices found some ground, and the Dow Jones and S&P rose 2% and 2.3% respectively. Nasdaq outperformed with an 2.8% rise. The improved sentiment dampened the recent safe haven rush and pushed Treasury two-year, 10-year and 30-year yields up 1bp, 5bp and 6bp to 0.22%, 0.61% and 1.20% respectively. Asian markets are opening up around 1% higher while US index futures and CDS spreads are little changed this morning. Asia’s dollar bond market saw a flurry of deals from investment grade corporates such as BOC Aviation, ST Engineering and BOC Aviation that priced dollar bonds yesterday. AMTD Group has launched an offer to exchange $123mn of its 7.625% Perp due to be called on 15 June for new USD/SGD Perps.


New Bond Issues

  • Pingdu State-owned Asset Mgmt $ 3yr @ 6.2% area
  • Kookmin Bank $ 5yr Covid-19 Response Bond @ T+195bp area. The Korean bank intends to use 90% of the proceeds of the 144A/Reg S offering to support SMEs, small offices and home businesses affected by the virus outbreak. The rest will be used for ESG-related projects.
  • PSA $ 10yr @ T+210bp area

Chinese smartphone maker Xiaomi, rated Baa2/BBB–/BBB, sold a debut $600mn 3.375% 10-year 144A/Reg S bond at 290bp over Treasuries, 50bp tighter than initial guidance of 340bp area. The bond received orders exceeding $4.5bn or 7.5x the issue size.

BOC Aviation, rated A-/A, raised $1bn via a 5-year bond at 300bp over Treasuries, 30bp tighter than initial guidance of 330bp area. Orders exceeded $4bn or 4x of issue size. The aircraft leasing company paid a significant premium compared to the $400mn 5-year bond issued in mid Jan of this year at 100bp over Treasuries. That bond is currently trading at ~97.5 with a yield of 3.2%.

Singapore Technologies Engineering returned to the dollar bond market after over a decade with Asia’s first AAA rated bond in five months. The Singapore-based state-linked company raised $750mn via a 1.5% 5-year Reg S bond at Treasuries plus 120bp, 40bp inside initial guidance of 160bp area. Order book stood at $4.1bn or 5.5x issue size.


S&P Lowers Future Retail From B- to CCC-, Fitch Downgrades Braskem Idesa to BB-

S&P has lowered Future Retail Ltd long-term issuer credit rating from ‘B-‘ to CCC- as its liquidity position has weakened by the extended lockdown in India due to COVID-19. The ratings remain on CreditWatch with negative implications to reflect the company’s weakening debt-servicing ability. Investors of Future Retail’s 5,6% bond due 2025 have lost almost 75% of their principal since issuance on 22 Jan 2020, as the bond trades at 27 cents on the dollar.

For the full story, click here

Fitch Ratings has also downgraded Braskem Idesa’s Long-Term Foreign and Local Currency Issuer Default Rating (IDR) to BB- from BB. The Rating Outlook has been revised to Negative from Stable. The downgrade reflects Fitch’s perception of heightened counterparty risk related to Petroleos Mexicanos’ (Pemex; IDR BB-/Stable) ethane supply agreement, which has been a key risk for Braskem Idesa, amid the negative oil price environment.


ECB to Accept Fallen Angels as Collateral

The European Central Bank has changed its rules to accept “fallen angel” bonds that lose their investment-grade credit rating as collateral to maintain banks’ access to its ultra-cheap liquidity during the coronavirus crisis. The ECB has already granted a waiver for Greek sovereign bonds from its ban on accepting assets as collateral that have a credit rating below investment grade as part of a broad loosening of its collateral rules it announced two weeks ago. Its loosened collateral rules will remain until September 2021. The ECB said it had “decided to grandfather the eligibility of marketable assets and the issuers of such assets that fulfilled minimum credit-quality requirements on 7 April 2020 in the event of a deterioration in credit ratings decided by the credit rating agencies accepted in the Eurosystem as long as the ratings remain above a certain credit quality level”.

For the full story, click here


Credit Ratings Ignored as Corporates Binge on Bonds

S&P Global Ratings, operating in 26 countries, issued 132 opinions of improving credit compared with 792 citing deterioration, or an upgrade-to-downgrade ratio of 0.17, according to first-quarter data compiled by Bloomberg. During the same period in 2019, there were 53 upgrades for every 100 downgrades; in 2018, 95 upgrades per 100 downgrades, and in 2013, 155 upgrades per 100 downgrades. Corporate America defied this recent blitz of negative credit ratings by raising a record $519 billion at the decade’s lowest interest rates. Firms rated non-investment grade, or so-called junk, borrowed an additional $81.8 billion, which helps explain why shareholders recovered 49% of their March losses. Credit ratings have been contrary indicators for decades. “Almost half the time, government bond yields fall when a rating action suggests they should climb, or they increase even as a change signals a decline,” according to a Bloomberg News 2012 report, citing data on 314 upgrades, downgrades and outlook changes going back as far as 38 years

For the full story, click here


‘New Normal’ in Corporate Bond Trading

The cost of trading corporate debt remains about three times the average in the weeks before the coronavirus crisis, despite unprecedented action by central banks in the US and Europe to ease market strains. These so-called bid-ask spreads on dollar-denominated investment-grade corporate bonds blew out to as much as 18.3 basis points in yield terms, or 0.18 percentage points, in the mid-March rout. That had dropped back to 7.3bp last week, but is still lofty compared to the average of about 2.5bp in February, according to fixed-income trading platform provider MarketAxess. Bid-offer spreads tend to rise in volatile markets because banks and other intermediaries become more reluctant to hold inventory. They have also been exacerbated by the move by some broker-dealers to send personnel home because of the virus lockdown, reducing their ability to transact.

For the full story, click here


US Companies Issue Bonds to Repay Credit Lines

More US companies are issuing bonds to repay lines of credit that they drew down on during the height of the market turmoil recently. This is an indication that the cash crunch may be easing, according to Bank of America analysts. Lenders faced requests from more than 170 U.S. companies to draw down on more than $120bn in prearranged credit lines in recent weeks, according to Bank of America estimates, as corporate executives rushed to buttress their firms’ finances. “Now we are seeing signs that some companies have confidence they can get to the other side because they are issuing corporate bonds to pay down credit lines,” Hans Mikkelsen, head of U.S. investment grade credit strategy at Bank of America, wrote in a note. “Of course the main reasons are not just favorable developments around COVID-19 but also policy responses,” Mikkelsen said, referring to the unprecedented spending and credit support programs to mitigate the economic impact of measures to stop the pandemic’s spread. Department store chain Macy’s is looking to raise up to US$5bn in debt financing, two sources familiar with the discussions told Refinitiv LPC on Wednesday. Bank of America is leading the transaction.

For the full story, click here


Banks Tighten Credit on Oil Companies After Hin Leong Losses

Banks and trading companies are scaling down activities in Asia following the oil price collapse and financial problems at three companies including major Singapore trader Hin Leong Trading (HLT), according to sources yesterday. The revelation of hundreds of millions of dollars of losses at HLT, one of Asia’s largest oil traders, came months after Agritrade International entered into judicial management to restructure US$1.5 billion (S$2.1 billion) of debt, and Hontop Energy (Singapore) went into receivership. All existing and new credit lines to commodities traders in Asia are being put under stringent review by banks’ senior management following HLT’s losses and the crash in oil prices, two senior bankers told Reuters. The Monetary Authority of Singapore said it was in close contact with banks and had told them “not to de-risk indiscriminately from the bunkering and oil trading sectors”.

For the full story, click here


China to Step Up Reform of Banks Hit by Coronavirus

China’s financial regulator said that it will step up efforts to restructure the country’s banking system and root out unfit shareholders, as smaller lenders struggle in the aftermath of the coronavirus outbreak. The announcement on Wednesday came just days after one bank revealed plans to recapitalise in a state-brokered bailout after its shares collapsed.

China’s small and medium-sized banks have struggled with high levels of bad debt for years. But the economic shock from the spread of Covid-19 could worsen credit quality problems as borrowers fail to pay back loans. “The impact on small and medium-sized banks from the current outbreak situation has been obvious,” China Banking and Insurance Regulatory Commission vice-chairman Cao Yu said on Wednesday. “As you may see again and again this year, the reform and restructuring of small and medium-sized banks will be more vigorous.”

For the full story, click here


Top Gainers & Losers – 23-Apr-20*

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