Sinopec Offers First Floating Notes as Funds Anticipate Fed MoveRachel Evans
China Petrochemical Corp., parent of Asia’s largest oil refiner, is marketing its first floating-rate bonds as investors prepare for rising U.S. interest rates.
Sinopec Group, as the Beijing-based state-owned enterprise is known, plans to sell three- and possibly five-year floating-rate securities as part of an offering that also includes fixed-rate debt, a person familiar with the matter said. The company isn’t offering 30-year bonds, after selling $500 million of that maturity last year and $1 billion in 2012, data compiled by Bloomberg show.
Signs of economic recovery in the U.S. are spurring expectations for higher interest rates, after Federal Reserve Chair Janet Yellen indicated last month the first increases may come “around six months” after stimulatory bond purchases end. Issuers from Asia outside Japan sold 10 times as many dollar-denominated floating-rate notes this year than in the first quarter of 2013, data compiled by Bloomberg show.
“There wasn’t an appetite two years ago for taking on floating-rate notes,” said Dilip Shahani, the Hong Kong-based head of global research at HSBC Holdings Plc. “The credit spread is the same whether you do fixed or floating, but in a floating-rate note, you also get the benefit of any move in the Fed funds rate,” he said, not speaking about any deal in particular.
Sinopec plans to sell three-year fixed-rate bonds at about 115 basis points more than Treasuries and similar-maturity floating-rate notes at an equivalent spread over the three-month London interbank offered rate, the person with knowledge of the details said, asking not to be identified because the terms aren’t set.
The oil refiner is offering five-year bonds -- fixed or floating rate, or both -- at about 125 basis points more than Treasuries or the equivalent over Libor. It plans to sell 10-year bonds at an about 175 basis-point spread. Thirteen banks have been hired to manage the 144A/Reg S sale.
Thailand’s Siam Commercial Bank Pcl is also in the market with dollar notes, offering five-year bonds at about 210 basis points more than Treasuries, a separate person said. The sale is set to be the Southeast Asian nation’s first in three months, after Charoen Pokphand Foods Pcl issued Thailand’s first U.S. currency exchangeable notes in January.
Indonesian developer PT Lippo Karawaci has hired banks to arrange a series of investor meetings in Singapore and Hong Kong from tomorrow regarding a possible dollar sale, another person said. It may offer $150 million of eight-year debentures.
The cost of insuring Asian corporate and sovereign bonds from default slid to the lowest level in more than six months today, according to traders of credit-default swaps.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan decreased 2 basis points to 120.5 basis points as of 8:02 a.m. in Hong Kong, Standard Chartered Plc prices show. The benchmark is poised for its lowest close since Sept. 23, according to data provider CMA.
The Markit iTraxx Australia index also slipped 2 basis points to 98.3 as of 10:52 a.m. in Sydney, according to Australia & New Zealand Banking Group Ltd. The gauge is on course for its lowest close since Jan. 15, 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 fell 1.5 to 82.8 basis points as of 8:53 a.m. in Tokyo, Citigroup Inc. prices show. The index is on track for its lowest close since March 19, 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.