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ICBC Offers First Dollar Bond Since Troubled China Trust Bailout

ICBC Brochures
Industrial and Commercial Bank of China Ltd. (ICBC) brochures are arranged for a photograph in Beijing. Photographer: Nelson Ching/Bloomberg

Feb. 25 (Bloomberg) -- Industrial & Commercial Bank of China Ltd., the country’s largest lender, is marketing its first U.S. dollar-denominated bond since the near-default of a trust as yield premiums in Asia reach a two-month low.

The bank is offering a three-year note at a yield of about 180 basis points more than Treasuries, said a person familiar with the matter, asking not to be identified because the matter is private. The sale is ICBC’s first since a high-yield product sold through the lender was bailed out in January. A unit of Bank of New Zealand has hired banks for a possible five-year dollar note sale, a separate person said today.

China’s ICBC is marketing notes as spreads in the U.S. currency in the region outside Japan narrowed to 278.5 basis points more than Treasuries, the least since Dec. 23, according to HSBC Holdings Plc indexes. Domestic borrowing costs for Chinese corporates reached a record-high of 6.3 percent on Jan. 7, according to Bank of America Merrill Lynch indexes. Yields were at 6.02 percent yesterday.

“We expect a lot of offshore issuance from China, especially since onshore costs of funds have risen so much in recent months,” said Kaushik Rudra, the Singapore-based global head of credit research at Standard Chartered Plc. “The trust issue is one that needs to be dealt with by the authorities. It doesn’t directly affect banks’ balance sheets.”

Concerns are mounting about trust defaults in China and their effect on the banks distributing these products. The 3 billion-yuan ($491 million) product issued by China Credit Trust Co. that averted default in January was sold through ICBC, whose credit default swaps have spiked by 28.5 basis points this year, according to data provider CMA.

Bad Loans

Chinese banks’ bad loans have increased for nine straight quarter to the highest level since the 2008 financial crisis. Their default risk is increasing at the fastest pace in Asia this year, according to the Markit iTraxx Asia index. China Development Bank Corp.’s credit default swaps have jumped 43 basis points this year, with Bank of China Ltd. and the Export-Import Bank of China the next biggest risers.

The cost to insure corporate and sovereign bonds in Asia-Pacific against non-payment declined today, according to credit-default swap traders.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan fell 3 basis points to 134 basis points as of 8:19 a.m. in Singapore, Australia & New Zealand Banking Group Ltd. prices show. The gauge is poised for its biggest one-day drop in a week and its lowest close since Feb. 18, according to data provider CMA.

Japan Risk

The Markit iTraxx Japan index declined 2 basis points to 74 as of 9:15 a.m. in Tokyo, Citigroup Inc. prices show. The measure is poised to fall for a fifth day to its lowest level since Jan. 13, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

The Markit iTraxx Australia index fell 2 basis points to 100 as of 11:25 a.m. in Sydney, according to Westpac Banking Corp. The benchmark, which has fallen for a second consecutive day, is set for its lowest level since Feb. 18, CMA prices show.

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.

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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