KEB, CITIC Market Dollar Debt as Sales Fall Amid Slowing Economy

Korea Exchange Bank (004940) and CITIC Bank International Ltd. are marketing dollar-denominated bonds as sales slow amid signs of weakening economic growth in Asia. New versions of the region’s bond risk indexes began trading today.

The Seoul-based lender and the Hong Kong-based unit of China’s biggest state-owned investment company are each seeking to sell as much as $300 million of notes today, according to people familiar with the deals.

Issuance is on track to almost halve this week as economic data showed China’s manufacturing may contract for an 11th month in September, while Japan’s exports fell for a third-straight month in August. Borrowers boosted debt sales earlier this month as stimulus from the world’s biggest central banks spurred demand for riskier assets. Asian bond funds had 16 straight weeks of inflows as of Sept. 12, EPFR Global data show.

“There’s a large amount of money that’s sloshing around and there’s still positive, though slower, fund flows to keep the party rolling along,” said Pradeep Mohinani, a Hong Kong- based desk analyst at Nomura Holdings Inc. At the same time, yield premiums may have fallen further than is justified by the economic outlook, he said.

Spreads on dollar bonds from Asian borrowers narrowed to 278 basis points more than Treasuries yesterday, the least since May 26, 2011, according to an HSBC Holdings Plc index.

Asia Risk

The latest series of the Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan was at 131 basis points as of 8.31 a.m. in Hong Kong, Westpac Banking Corp. prices show.

Fresh versions of the benchmarks are created every six months when companies are added or dropped depending on their ratings, cost of protection and ease of trading.

KEB is offering three-year bonds at about 175 basis points more than two-year Treasuries, the person familiar with the matter said, asking not to be identified because the terms aren’t set.

CITIC Bank is marketing a 10-year bond that can be bought back by the Hong Kong-based lender in five years. The lower tier 2 note is being offered at a spread of about 350 basis points more than five-year Treasuries, the person said.

Fantasia Holdings Group Co., a Shenzhen-based property developer, is also marketing a dollar-denominated bond in the low-to mid-14 percent range, another person said.

Bond Roll

The previous series of the Asian bond risk gauge closed at 112.6 basis points yesterday, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. The maturity date of the new indexes is December 2017, compared with June 2017 on the Series 17 versions.

The Series 18 Markit iTraxx Australia index was at 151.5 basis points as of 10:21 a.m. in Sydney, according to Westpac Banking Corp. That compares with a closing price of 136.6 basis points for the previous series yesterday, according to data provider CMA.

The new Markit iTraxx Japan series was at 206 basis points as of 9:15 a.m. in Tokyo, Deutsche Bank AG prices show.

Default swaps on JFE Holdings Inc. and OJI Paper Co. were added to the Markit iTraxx Japan series, with contracts on Softbank Corp. and JFE Steel Corp. removed, according to information on Markit’s website. There were no changes to the constituents of the Asian and Australian gauges.

Credit-default swap indexes are benchmarks for protecting bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.

To contact the reporters on this story: Tanya Angerer in Singapore at tangerer@bloomberg.net; Rachel Evans in Hong Kong at revans43@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net

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