Chalco Plans Bond as Asia Dollar Yields Fall Most in Three WeeksRachel Evans
Aluminum Corporation of China Ltd., the Hong Kong-listed unit of the nation’s largest producer of the metal, plans to sell dollar-denominated perpetual debt after borrowing costs for Asian issuers fell the most in three weeks.
The state-owned company, known as Chalco, is slated to meet bond investors in Hong Kong, Singapore and London from tomorrow, a person familiar with the matter said, asking not to be identified because the details are private. Premiums on notes sold by Asian issuers in the U.S. currency fell 9 basis points last week to 291 on Oct. 11, the most since the similar period ended Sept. 20, JPMorgan Chase & Co. indexes show.
U.S. Senate leaders yesterday said they’d made significant progress toward an agreement that would halt a partial shutdown of the government and prevent the nation from breaching its debt ceiling later this week. Majority Leader Harry Reid said he hoped a deal could be announced today. The cost of insuring corporate and sovereign bonds in Asia is poised for a 17 basis-point decline since Sept. 30.
“U.S. budget negotiations are like the boy who cried wolf several times, and therefore market investors are prepared not to pay too much attention to them,” said Viktor Hjort, a Hong Kong-based managing director in Morgan Stanley’s research team. “Asian credit markets haven’t sold off very much on the back of U.S. fiscal tensions so I don’t think they will rally off a resolution either.”
The possible accord in the U.S. would suspend the debt limit through Feb. 7, 2014, fund the government through Jan. 15 and require a House-Senate budget conference by Dec. 13, according to a Senate source familiar with the talks, who spoke on condition of anonymity to discuss them.
Citic Pacific Ltd. was the last Chinese company to sell dollar bonds with no fixed maturity, data compiled by Bloomberg show. The junk-rated steelmaker paid 8.625 percent for $1 billion of perpetual notes that were quoted at a yield of 10.1 percent as of 11:50 a.m. in Hong Kong, Bloomberg prices show. Standard & Poor’s rates Chalco BBB-, its lowest investment grade.
Perpetual bonds typically pay more than those with a set maturity to compensate investors for the risk the notes won’t be called. The notes are generally honored before equity in the event of default, and may contain terms stipulating that coupons must be paid if a dividend has been declared. Such equity-related features mean the securities can lower a company’s debt-to-equity ratio.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan was little changed at 139 basis points as of 8:50 a.m. in Hong Kong, Australia & New Zealand Banking Group Ltd. prices show.
The Markit iTraxx Australia index dropped 2 basis points to 111.5 basis points as of 11:40 a.m. in Sydney, according to Deutsche Bank AG prices. The benchmark is poised for its lowest close since Sept. 19, according to data provider CMA.
The Markit iTraxx Japan index declined 2.5 basis points to 88 as of 8:53 a.m. in Tokyo, according to Citigroup Inc. prices. The measure last closed lower on Sept. 19, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.
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.