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China Aluminum Plans Bonds as Yield Premiums Drop to 1-Month Low

Feb. 18 (Bloomberg) -- China Aluminum International Engineering Corp. is considering a sale of dollar perpetual bonds as the yield premium investors demand to own U.S. currency debt in Asia drops to the least in almost a month.

The unit of state-owned Aluminum Corp. of China hired Morgan Stanley and CLSA, part of Citic Securities Co., to arrange a series of fixed-income investor meetings in Singapore and Hong Kong, a person familiar said. Hong Kong-based Sun Hung Kai Properties Ltd. is marketing 10-year notes at a spread of about 225 basis points more than Treasuries.

Chinese companies are coming to the dollar bond market as onshore borrowing costs remain elevated, averaging 6.18 percent this year compared with 5.10 percent in all of 2013, according to data compiled by Bloomberg. New World Development Co., China Resources Land Ltd. and Far East Horizon Ltd. are among those planning sales even as aggregate financing, China’s broadest measure of credit, jumped to a record 2.58 trillion yuan ($425.4 billion) last month, according to a People’s Bank of China statement released Feb. 15.

“Any improvement in onshore liquidity is beneficial for China’s U.S. dollar spreads because it reduces Chinese corporates’ reliance on offshore bonds markets,” said Mark Reade, a Hong Kong-based desk analyst at Mizuho Securities Asia Ltd. “We’re poised for a spurt of supply toward the end of this week as a number of issuers wrap up investor roadshows.”

Record Year

Chinese and Hong Kong-based borrowers sold a record 56 percent of Asian offerings denominated in dollars last year, Bloomberg-compiled data show. Dollar spreads for Chinese companies fell to 301.96 basis points yesterday, near the lowest since Jan. 23, HSBC Holdings Plc indexes show. Premiums for dollar bonds in Asia averaged 284.42 basis points, the least since that date.

Property companies make up 66 percent of issuance from China and Hong Kong this year, compared with almost 80 percent for the same period last year.

The cost of insuring corporate bonds in Australia and Japan from non-payment declined today, according to traders of credit-default swaps.

The Markit iTraxx Japan index retreated 1 basis point to 79.25 basis points as of 9:27 a.m. in Tokyo, Citigroup Inc. prices show. The measure is on track for its lowest close since Feb. 12 after a 0.4 basis-point drop last week, according to data provider CMA.

The Markit iTraxx Australia index also fell 1 basis point to 99 as of 10:16 a.m. in Sydney, Westpac Banking Corp. prices show. The gauge is falling for a third consecutive day after three straight weeks of declines, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

Asia Risk

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan was little changed at 132 basis points as of 8:24 a.m. in Singapore, Australia & New Zealand Banking Group Ltd. prices show. The gauge has ranged from 129.3 basis points to 153.5 basis points this year, according to CMA.

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 reporter on this story: Tanya Angerer in Singapore at tangerer@bloomberg.net

To contact the editor responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net

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