Asia-Pacific USD-Bond Issuance Heads For Longest Hiatus in Month

Asian companies refrained from issuing U.S. dollar-denominated bonds for a fourth day as investors weighed the timing of a reduction in the Federal Reserve’s stimulus program.

The longest break in issuance since the five days through Nov. 14 comes as Treasuries snapped a three-day gain on speculation that a budget deal in Washington D.C. will make it easier for the Fed to reduce asset purchases. The spreads on dollar bonds for Asian companies dropped to 313.5 basis points more than Treasuries on Dec. 10, the lowest since March 15, according to JPMorgan Chase & Co. indexes.

Borrowers from China including Hong Kong account for 53.4 percent of offerings this year, up from 42.1 percent in 2012, according to data compiled by Bloomberg. That trend will continue, said Moody’s Investors Service.

“Firms in China continue to tap offshore funds because of low interest rates on U.S. dollar borrowing, expectations for continued RMB appreciation, diversification of investor base and bond currency, rising capital needs for their overseas acquisitions and expansions, and strong investor demand for Chinese corporate bonds,” Moody’s analysts Joe Morrison and Gary Lau said in a report today.

Most of the companies Moody’s covers in the Asia-Pacific region outside Japan and Australia should be able to successfully refinance domestic and cross-border bonds equivalent to a total $378 billion in the four years through 2017, according to the report. The amount of those bonds maturing next year in the region will peak at $108 billion, falling to an average $85 billion per year between 2015 and 2017, according to the Moody’s report.

High Yield

Of the total debt due in China, 24 percent is offshore, with an average of $6 billion a year for high-yield companies, according to the report today. Of the top 10 issuers with the largest refinancing needs through 2017, five are from China and Hong Kong, Moody’s said. China National Petroleum Corp. has the most outstanding debt, at $40 billion, Moody’s said.

China State Shipbuilding Corp. on Dec. 5 issued an $800 million note, while Baoshan Iron & Steel Co., the nation’s largest-listed steelmaker, sold $500 million of debt. Pacnet Ltd., a Hong Kong-based owner of submarine telecommunications cables, sold a $350 million debenture. Dollar offerings almost tripled to $2.65 billion last week, the highest amount since the five days through Oct. 25, according to data compiled by Bloomberg.

Near Record

The yield on AAA rated three-year Chinese local-currency bonds was 6.147 percent yesterday, near a record 6.245 percent struck on Nov. 28. A record 2.6 trillion yuan ($428 billion) of interest and principal on securities issued by non-financial companies must be repaid next year, 19 percent more than this year and the most since China International Capital Corp. began collecting the data in 2008.

The cost of insuring corporate bonds in Japan and Australia against non-payment increased, according to credit-default swap traders.

The Markit iTraxx Japan index rose 0.5 of a basis point to 72.3 basis points as of 9:16 a.m. in Tokyo, Citigroup Inc. prices show. The gauge, which has ranged from 74 to 148.1 this year, is poised for its first increase this week after dipping to the lowest in five years yesterday, according to data provider CMA.

The Markit iTraxx Australia index advanced 1 basis point to 103 as of 8:58 a.m. in Singapore, Westpac Banking Corp. prices show. The measure, which has ranged from 96.1 to 149.5 this year, is set to increase for a second consecutive day, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.

Asia Risk

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan was little changed at 132 basis points as of 8:13 a.m. in Singapore, Australia & New Zealand Banking Group Ltd. prices show. The benchmark is poised for a 24.4 basis-point drop since Sept. 30, its biggest quarterly drop since the third quarter of 2012, 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.

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