China Mengniu Dairy Co., the nation’s largest producer of milk and icecreams, is considering a sale of dollar-denominated bonds after costs fell to a 10-month low.
The company, one of 22 found to have sold products containing melamine five years ago, plans to meet investors in Hong Kong, Singapore and London from Nov. 18 to discuss the offering, a person familiar with the matter said, asking not to be identified because the details are private. Mengniu’s state-owned parent, Cofco Corp., sold $500 million each of five- and 10-year bonds earlier this month.
Borrowers from China and Hong Kong boosted sales of U.S. currency debt 47 percent this quarter from the previous three months as onshore lending conditions tighten. Issuers in the world’s second-largest economy pay an average 361.3 basis points more than Treasuries to sell dollar debt, 1.4 basis points more than a 10-month low reached on Nov. 13, according to JPMorgan Chase & Co. indexes.
“Corporates are finding it more difficult to get bank loans or financing onshore so it’s natural for them to come out to issue, especially when rates are so low,” said Annisa Lee, a Hong Kong-based credit analyst at Nomura Holdings Inc. “We’ll probably see more Chinese issuers selling bonds, given onshore banks’ liquidity will continue to go tighter.”
China’s money-market rates and onshore bond yields soared this month as the nation’s Communist Party leadership met to outline economic reforms. The benchmark seven-day repurchase rate rose to 5.3 percent this week, the most since it climbed to a four-month high on Oct. 30. The yield premium on three-year corporate bonds in China surged to a more-than four-month high.
Developer Dalian Wanda Commercial Properties Co. was the last Chinese company to raise U.S. currency debt, selling $600 million of five-year bonds at a spread of 375 basis points more than Treasuries yesterday, data compiled by Bloomberg show. The company postponed an offering last week after marketing the notes at a 325 basis-point spread, a person with knowledge of the details said at the time.
China’s dairy companies are seeking to win back consumer confidence after a series of food safety scandals. Demand for milk in the world’s most populous nation has increased more than sixfold in the last 20 years, according to data from the U.S. Department of Agriculture.
Mengniu agreed to buy a stake in raw-milk producer China Modern Dairy Holdings Ltd. in May to increase its control of milk supplies. Moldy cattle feed led to excessive toxin levels in its milk in 2011.
Mengniu and France’s Danone SA announced a joint venture earlier this year which will help bring the Paris-based company’s brands to the world’s most-populous nation, while a tie-up with Denmark’s Arla Foods amba was arranged in 2012.
Cofco sold $500 million of bonds due November 2018 on Nov. 5 at a 175 basis-point spread above similar maturity Treasuries. An issue of notes maturing in November 2023 sold at 215 basis points more than Treasuries.
The cost of insuring corporate and sovereign bonds in Asia from non-payment decreased today, according to traders of credit default swaps.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan fell 2 basis points to 134 basis points as of 8:21 a.m. in Singapore, Australia & New Zealand Banking Group Ltd. prices show. The measure is poised to drop 2.2 basis points this week, the most since the five days ended Oct. 18, according to data provider CMA.
The Markit iTraxx Japan index declined 2 basis points to 85.75 as of 9.22 a.m. in Tokyo, Citigroup Inc. prices show. The benchmark is set for an 8.75 basis-point fall this week, the most since the five days ended July 12, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.
The Markit iTraxx Australia index rose 0.5 of a basis point to 103.5 basis points as of 11:44 a.m. in Sydney, according to Westpac Banking Corp prices.
Credit-default swap indexes are benchmarks for insuring 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.