Citic Pacific’s Bonds Surge by Record as Goldman Sees Positives

Citic Pacific Ltd.’s perpetual bonds have jumped by a record since the steelmaker said last week it will buy its parent’s main operating unit, a move Goldman Sachs Group Inc. says may help improve corporate governance.

Prices on the manufacturer’s dollar-denominated 8.625 percent notes with no set maturity have leapt 9.9 cents on the dollar since March 25 to 107.01, the most for any five-business-day period, according to data compiled by Bloomberg. The company said on March 26 it will absorb about $36 billion of assets from state-owned parent Citic Group Corp.

Goldman removed Citic Pacific’s perpetual securities from a list of its least favored bonds, according to a research note dated March 30. The deal comes as Chinese President Xi Jinping advocates the most sweeping changes since Deng Xiaoping’s liberalization in 1978, including loosening yuan trading and allowing more private investments in state businesses.

“If the transaction is completed, we believe it should help to improve corporate governance for the group,” said analysts led by Hong Kong-based Kenneth Ho in a March 31 note. “If the Citic Pacific acquisition does materialize, and this is accompanied by significant equity injection, then we would view it as a clear credit positive for Citic Pacific.”

The company plans to sell about $4 billion of shares to restore its public float after absorbing assets from Citic Group, people with knowledge of the matter said last week.

Shinhan Markets

Elsewhere in the dollar bond market in Asia, South Korea’s Shinhan Bank is marketing a three-year floating-rate debenture at about 80 basis points more than the three-month London interbank offered rate.

The cost of insuring corporate and sovereign bonds from default in Asia-Pacific fell today.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan decreased 2 basis points to 125 basis points as of 8:41 a.m. in Hong Kong, Australia & New Zealand Banking Group Ltd. prices show. The gauge is poised for a third straight day of declines, the longest streak of losses since the period ended March 7, according to data provider CMA.

The Markit iTraxx Australia index dropped 0.5 basis point to 100.3 as of 11:24 a.m. in Sydney, according to Citigroup Inc. prices. The benchmark is poised for its lowest close since Feb. 18 after a 1.9 basis point drop last week, CMA data shows.

The Markit iTraxx Japan index declined 0.3 basis point to 84 basis points as of 9:25 a.m. in Tokyo, Citigroup prices show. The measure, which fell 4.3 basis points last week, the most since the five-day period ended Feb. 21, is on track for its lowest close since March 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.

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