BOC Aviation Caps Record Month for Dollar Bonds in Asia

BOC Aviation Pte, Bank of China Ltd.’s aircraft leasing unit, and Tata Motors Ltd. (TTMT) are marketing dollar-denominated bonds after a record month for Asian offerings.

BOC Aviation plans to sell five-year debt while Tata Motors, which makes Jaguar and Land Rover cars, is marketing $300 million of seven-year securities, separate people familiar with the matters said. Borrowers from Asia outside Japan issued $35.5 billion of notes in the U.S. currency this month, 57 percent more than the previous busiest month, January 2013, data compiled by Bloomberg show.

Fund managers are looking to put cash to work amid greater clarity over the U.S. Federal Reserve’s plans to end stimulus and raise interest rates, according to Citigroup Inc. Investors channeled $3.32 billion into bond funds in the week ended April 23, with inflows into emerging markets continuing despite growing tensions between Ukraine and Russia, data from EPFR Global show.

“We’ve noticed extremely resilient demand from investors in Asia,” said Duncan Phillips, the Hong Kong-based head of Asia-Pacific debt syndicate at Citigroup, this year’s largest arranger of Asian dollar bonds. “Market expectations on Fed actions have stabilized over the past few months, particularly with regard to the taper and future rate hikes. With that backdrop, investors have felt more comfortable buying fixed-income securities,” he said April 25.

Fed Taper

The Federal Reserve will likely wind back asset purchases to $45 billion as it finishes a two-day meeting today. The central bank may start to raise interest rates “around six months” after ending its asset-buying program, Chair Janet Yellen said in March. The Fed has since played down forecasts that interest rates might rise faster than previously predicted.

BOC Aviation is offering five-year notes at about 245 basis points more than Treasuries, a person with knowledge of the details said, asking not to be identified because the terms aren’t set. Tata Motors plans to price its debt to yield 5.75 percent to 5.875 percent, a separate person said. Shui On Land Ltd., a Shanghai-based developer, meanwhile continues to market four- and six-year bonds, another person said.

China Petrochemical Corp., known as Sinopec Group, led April sales, raising $5 billion in Asia’s biggest dollar bond offering in a decade, data compiled by Bloomberg show. Cnooc Ltd., China’s biggest offshore energy explorer, issued $4 billion of debt, the data show.

Front Loading

“It’s clear that a lot of the supply this year has been front loaded,” said Citigroup’s Phillips. “The China oil and gas transactions tend to be fairly large, boosting the overall volumes from the country. Usually these borrowers plan to issue once a year, so as the deals are executed the expected remaining supply diminishes.”

The cost of insuring Asia-Pacific corporate and sovereign bonds from default fell, according to traders of credit-default swaps.

The Markit iTraxx Australia index lost 0.5 basis point to 98 basis points as of 11:06 a.m. in Sydney, according to Australia & New Zealand Banking Group Ltd. The benchmark is on course to decline 5.2 basis points this month, according to data provider CMA.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan slipped 0.5 basis point to 125.5 basis points as of 8:55 a.m. in Hong Kong, Standard Chartered Plc prices show. The gauge is set for its lowest close since April 24, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

Japan Risk

The Markit iTraxx Japan index slid 1.5 basis points from its April 28 close to 84.8 as of 10:03 a.m. in Tokyo, Citigroup prices show. The measure is poised for its lowest close since April 18, according to CMA. Markets in Japan were closed yesterday for a national holiday.

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.

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To contact the editors responsible for this story: Katrina Nicholas at Andrew Monahan, Ken McCallum

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