Far East Consortium Pulls Debt Sale as Asia Bond Premiums Widen
Far East Consortium International Ltd. (35) canceled a dollar-denominated bond sale, the second issuer in the Asia-Pacific region to pull an offering this week, as yield premiums increased for the longest stretch since May.
A sale isn’t in the company’s interests under current market conditions, Far East said in a statement to the Hong Kong stock exchange yesterday. Australia’s BlueScope Steel Ltd. scrapped a $300 million issue, saying that terms and conditions didn’t meet expectations. Spreads on Asian dollar bonds widened for a fifth day yesterday to 262 basis points more than Treasuries, the longest streak of increases in six months, according to HSBC Holdings Plc indexes.
U.S. President Barack Obama, re-elected to the White House last week, is seeking to avert the so-called fiscal cliff that threatens to impose $607 billion of tax increases and spending cuts on the world’s largest economy in 2013. Asian bond risk has increased since the start of November after falling for the prior five months, according to data provider CMA.
“Sentiment turned around quite sharply after the election as everyone focused on the fiscal cliff in the U.S, and other uncertainties ahead,” said Louisa Lam, a Hong Kong-based credit analyst at HSBC. “We’re now seeing a small market correction and that’s why new deals have paused a bit.”
Far East, a property developer, was planning to sell about $200 million of five-year notes at 5.5 percent, a person familiar with the matter said last week. The borrower may reconsider should market conditions improve, the statement said. Another real-estate company, China Aoyuan Property Group Ltd., is talking to investors about a five-year dollar bond, a person with knowledge of the details said today.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan declined two basis points to 123 basis points as of 8:28 a.m. in Hong Kong, Royal Bank of Scotland Group Plc prices show. The index has risen from 117.9 on Oct. 31, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices from dealers in the privately negotiated market.
The Markit iTraxx Australia index fell one basis point to 145 as of 11:35 a.m. in Sydney, according to Westpac Banking Corp. The Markit iTraxx Japan index rose two basis points to 201 as of 9:28 a.m. in Tokyo, Citigroup Inc. prices show. The U.S. bond market was closed yesterday for Veterans’ Day.
The swap indexes are benchmarks for insuring bonds against default and traders use them to speculate on debt quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite. The contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.
Gemdale Corp. (600383) was the only Asian company to sell dollar debt yesterday, offering its second note of the year before issuers took a break for national holidays in Singapore, India and Malaysia today.
The Chinese developer priced $350 million of five-year securities after selling 1.2 billion yuan ($193 million) of bonds due 2015 in Hong Kong in July, according to data compiled by Bloomberg. The U.S.-currency sale received more than four times as many orders than the number of notes available, according to a person familiar with the matter.
Gemdale paid 7.125 percent to sell the dollar debt, more than two percentage points less than for its so-called Dim Sum notes, the data show.
Some companies are planning to offer bonds with only a few weeks left to issue until the end of the year, according to HSBC’s Lam.
“I still see about $4 billion to $5 billion of new issues coming before the end of the year,” she said.
Borrowers from Asia excluding Japan, offered $3.8 billion of bonds so far this month, according to data compiled by Bloomberg. Sales in October were $10.5 billion, down 37 percent from September, the busiest month this year, the data show.
To contact the reporter on this story: Rachel Evans in Hong Kong at firstname.lastname@example.org