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Asia Debt Risk Falls to One-Year Low as Kaisa Plans Dollar Bonds

Chinese Premier Wen Jiabao
Wen Jiabao, China's premier. Photographer: Nelson Ching/Bloomberg

The cost of insuring corporate and government bonds in Asia from non-payment dropped to the lowest in more than a year as Kaisa Group Holdings Ltd. and PTT Global Chemical Pcl are said to market dollar-denominated debt.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan is set for its lowest close since Aug. 3, 2011, CMA and Royal Bank of Scotland Group Plc prices show. Kaisa, a Chinese developer, is considering pricing five-year notes at about 13.5 percent, a person familiar with the matter said, asking not to be identified because terms aren’t set.

China has “ample” room to use fiscal and monetary measures, Premier Wen Jiabao said yesterday, indicating the government may step in to stimulate the economy and support growth analysts estimate may slump to 7.9 percent this year. China is trying to prevent growth from slipping below the 7.5 percent target set in March, which would already be the weakest since 1990. The Federal Open Market Committee meanwhile starts a two-day meeting today to discuss additional measures to prop up the U.S. economy.

“Expectations for further quantitative easing in the U.S. and selective stimulus packages in China are doing a lot for confidence,” said Brayan Lai, a Singapore-based desk analyst in emerging-market credit trading at Jefferies Group Inc. “Some investors are coming back in, which is very conducive to getting deals done.”

PTT Global Chemical, Thailand’s biggest chemicals company by market value, is marketing a benchmark-sized offering of 10-year dollar bonds to yield about 300 basis points, or 3 percentage points, more than similar-maturity Treasuries, a person familiar with the matter said today, also asking not to be identified. Benchmark typically means at least $500 million.

Bond Risk

The Markit iTraxx Asia index fell 3 basis points to 127.5 as of 8:21 a.m. in Hong Kong, RBS prices show. The gauge has declined from 153 at the start of the month, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. A drop signals improving perceptions of creditworthiness.

The Markit iTraxx Japan index decreased 3 basis points to 196 as of 9:53 a.m. in Tokyo, Citigroup Inc. prices show. The index is set for its lowest close since Aug. 22, CMA prices show. The Markit iTraxx Australia index fell 4 basis points to 148.5 basis points as of 10:12 a.m. in Sydney, according to Westpac Banking Corp.

The swap indexes are benchmarks for protecting bonds against default and traders use them to speculate on credit quality. The 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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