Chinese Builder Markets Asia’s First Dollar Junk Debt Since JulyRachel Evans
Cifi Holdings Group Co., a Chinese builder, is marketing more of its existing bonds due April 2018, the first offering of Asian junk debt in the U.S. currency in almost two months.
The developer, whose contracted sales surged 78 percent in the seven months through July, plans to offer $225 million more of the notes at 104 cents on the dollar, according to an e-mailed note from Nomura Holdings Inc. Indonesia’s PT Multipolar was the last company from the region to sell high-yield debt in dollars, pricing $200 million of 9.75 percent securities on July 18, Bloomberg data show.
Yields on speculative-grade dollar securities from Asian borrowers surged to a four-year high of 8.13 percent on Sept. 6, and remain near that level at 8.06 percent, JPMorgan Chase & Co. indexes show. Among Chinese junk debt, developer notes returned 0.5 percent last month, exceeding the average 0.1 percent advance, according to Bank of America Merrill Lynch indexes.
Chinese high-yield developers “have now also all reported their first-half figures and largely speaking there weren’t any negative surprises,” said Swee Ching Lim, a Singapore-based credit analyst at Western Asset Management Co. “This, along with monthly contracted sales disclosed by the issuers, is giving investors better comfort versus their industrial peers.”
Cifi’s debt was quoted as high as 106.6 cents yesterday, Bloomberg prices show. Standard & Poor’s gave the company’s initial $275 million issue a B rating, its fifth-highest sub-investment grade, data compiled by Bloomberg show.
High-yield bonds hold ratings lower than BBB- from S&P and Fitch Ratings Ltd., or the equivalent Baa3 from Moody’s Investors Service.
Sales of junk bonds denominated in either dollars, euro or yen in the region outside Japan rose to $20 billion this year compared with $7.8 billion in the same period of 2012, according to data compiled by Bloomberg. Issuance was concentrated in the first five months of the year, when yields averaged 5.59 percent.
Cifi hadn’t sold dollar debt before its initial note sale in April, Bloomberg data show. The company, which develops hotels and residential properties in China, has the equivalent of $432 million of bonds and loans outstanding.
Now is “an opportune time to invest or diversify in to Asian high-yield corporate bonds,” Tim Jagger, lead portfolio manager for Asian high-yield at the money manager, said in an e-mailed media release today. “Fundamentals are robust and valuations attractive.”
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan rose 5 basis points to 140 as of 3:56 p.m. in Hong Kong, Australia & New Zealand Banking Group Ltd. prices show.
The Markit iTraxx Australia index was little changed at 111 basis points as of 5:08 p.m. in Sydney, according to Westpac Banking Corp. The measure has decreased 13 basis points this month, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.
The Markit iTraxx Japan index was also little changed at 85 as of 9:49 a.m. in Tokyo, Citigroup Inc. prices show. The gauge has declined 5.4 basis points this week, according to CMA.
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.