Chinese issuers are paying the most for dollar-denominated bonds compared with their Asian peers in six months as expectations of further sales lift costs.
Debt sold by companies in the world’s second-largest economy yields an average 6.05 percent, 94 basis points more than borrowers from Asia outside Japan and the widest gap since Aug. 16, according to JPMorgan Chase & Co. indexes. Far East Horizon Ltd., which derives 97 percent of its revenue from mainland China, raised $400 million via an offering of 4.625 percent 2017 bonds yesterday, data compiled by Bloomberg show.
Guangzhou R&F Properties Co., which has $1.3 billion equivalent of debt due this year, led $14.3 billion of U.S. currency sales by issuers from China and Hong Kong this year, 5 percent more than the first two months of 2013. The cost of onshore funding for top-rated companies climbed to a record last month amid government attempts to rein in excess leverage.
“Demand for supply from Chinese issuers will remain if the price is right,” said Mark Reade, a Hong Kong-based desk analyst at Mizuho Securities Asia Ltd. “While investors are showing some additional caution toward Chinese issuers, that’s more to do with the expectation of further offshore supply given high onshore funding costs than any major fundamental concerns.”
Top-rated companies pay an average 6.01 percent to borrow 10-year debt in China, 42 basis points less than a record 6.43 percent high on Jan. 14, Chinabond indexes show. Far East Horizon priced its notes to yield 4.65 percent.
The Hong Kong-based financial services provider sold 52 percent of its bonds to fund managers and 33 percent to private banks, a person familiar said. About 90 percent were sold to investors in Asia and the remainder to investors in Europe.
The company is slated to repay 1.25 billion yuan of bonds this year, as well as a 750 million yuan Dim Sum loan and a $200 million term facility, Bloomberg-compiled data show.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan dropped 1 basis point to 135 basis points as of 2:23 p.m. in Singapore, according to prices from Australia & New Zealand Banking Group Ltd. The gauge is falling for a third day, according to data provider CMA.
The Markit iTraxx Australia index gained 1 basis point to 102 as of 5:21 p.m. in Sydney, according to ANZ. The measure is on course to rise for a second consecutive day after closing at the lowest level in a week on Feb. 25, according CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.
The Markit iTraxx Japan index advanced 1 basis point to 76 basis points as of 3:16 p.m. in Tokyo, Citigroup Inc. prices show. The measure is on track for its highest close since Feb. 21, CMA data 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.