Franshion Properties China Ltd. is marketing U.S. dollar-denominated notes as bond sales in the region surged to a three-week high, buoyed by offerings from borrowers in China and Hong Kong. Credit risk rose.
Franshion, a Hong Kong-based real estate developer with projects on the mainland, is offering five-year notes at a yield of about 5.25 percent, according to a person familiar with the matter, who declined to be identified as the terms aren’t set. Companies in Asia sold $3.95 billion of bonds this week, compared with $3.78 billion the five days to Oct. 12 and $300 million the period before that as Chinese banks’ borrowing costs headed for a sixth weekly advance.
The Shanghai interbank offered rate, or Shibor, for three-month yuan loans reached an 11-week high of 3.71 percent today. Syndicated loan volumes in Hong Kong have tumbled 29 percent this year versus the same period of 2011 while dollar bond sales in Asia are at a record $103.6 billion, surpassing the $75.8 billion set in all of 2010.
“Low U.S. interest rates make the dollar bond market attractive for issuers,” said Edwin Chan, the head of Asian credit research at UBS AG in Hong Kong. “Chinese and Hong Kong companies are dominating sales because domestic credit conditions have been tight. The pipeline into 2013 will be strong.”
The six weeks of increases in Shibor is the longest in 21 months, according to the National Interbank Funding Center. The rate has risen 13 basis points from a two-year low of 3.58 percent on Aug. 13.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan advanced 2 basis points to 115.5 basis points as of 8:43 a.m. in Hong Kong, Credit Agricole SA prices show. The measure declined for the six trading days through yesterday and is on track to fall 10.7 basis points this week, according to data provider CMA.
The Markit iTraxx Australia index increased 1.5 basis points to 133.5 as of 11:43 a.m. in Sydney, according to Credit Agricole. The gauge is on course to fall 17.4 basis points this week, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.
The Markit iTraxx Japan index rose 1.5 basis points to 208.5 as of 9:28 a.m. in Tokyo, Citigroup Inc. prices show. A close at that level would bring the index’s decline for the week to 14.5 basis points, CMA prices show.
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. A basis point is 0.01 percentage point.