Citic Bank Joins Chalco Marketing Debt as Asia Risk FallsRachel Evans
China Citic Bank International Ltd. and Aluminum Corp. of China Ltd. are marketing sales of dollar-denominated securities with no fixed maturity as bond risk in Asia slides to the lowest in almost seven months.
China Citic Bank plans to sell its notes, which can be bought back by the lender after five years, at a yield of about 7.375 percent, a person familiar with the matter said. The subordinated debt will count as additional Tier 1 capital. Aluminum Corp., known as Chalco, is offering senior perpetual debentures that can be called after three years at about 6.5 percent, a separate person said.
China is moving to shore up confidence in its economy after the nation’s first onshore bond default last month, with Premier Li Keqiang vowing today to eliminate outdated manufacturing capacity. Bad loans increased for a ninth straight quarter to the highest level since the 2008 financial crisis in the last three months of 2013, the banking regulator said in February. A gauge of Asian corporate and sovereign bond risk is poised to fall to its least since Sept. 19.
“Onshore defaults will go up, banks’ non-performing loans will also go up and you’ll continue to see negative headlines on troubled trust products -- but these are all onshore,” said Becky Liu, a Hong Kong-based rates strategist at Standard Chartered Plc. “Due to the curbs on shadow banking onshore, more companies will be more actively looking for funding options offshore.”
Dollar sales by Chinese issuers slumped last month as Shanghai Chaori Solar Energy Science & Technology Co. defaulted on an onshore bond when it failed to fully pay a coupon. Investors in a 3 billion yuan ($483 million) trust product narrowly avoided losing their principal in January when they were bailed out days before its scheduled maturity.
A unit of China Sports Industry Group Co. failed to repay 144 million yuan of principal on a 600 million yuan trust loan, according to a statement from the company to Shanghai’s stock exchange dated April 4. The 21st Century Business Herald reported today China Beijing Safe Bank Investment Funds has delayed a payment to investors on a Shandong province expressway project.
Yields on Chinese dollar debt have fallen since Chaori Solar’s non-payment, paying 5.99 percent yesterday, the least since Feb. 14, according to JPMorgan Chase & Co. indexes.
Also marketing dollar bonds is State Bank of India. The Mumbai-based lender is offering five- and 10-year securities at about 240 basis points and about 265 basis points more than similar-maturity Treasuries respectively, a person with knowledge of those details said. Bank of East Asia Ltd. is considering U.S. currency bonds and conducting conference calls with investors tomorrow.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan slipped 3 basis points to 119 basis points as of 8:17 a.m. in Hong Kong, the Royal Bank of Scotland Group Plc prices show. The gauge is falling for a fifth day, its longest streak of decreases since the period ended Feb. 11, according to data provider CMA.
The Markit iTraxx Australia index dropped 3 basis points to 96 as of 10:06 a.m. in Sydney, according to Westpac Banking Corp. The measure is on course for its lowest close since May 2010, 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 declined 1.5 basis points to 83.8 basis points as of 9:16 a.m. in Tokyo, Citigroup Inc. prices show. The index is on track for its lowest close since April 4, 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.