Yanzhou Markets Dollar Debt as Fitch Sees No Coal Price RecoveryRachel Evans
China’s Yanzhou Coal Mining Co. is marketing a sale of dollar-denominated bonds as Fitch Ratings Ltd. sees prices of the fuel holding at near the lowest in more than five years.
Yanzhou, based in Shandong province, plans to sell perpetual notes that can be called after two years at about 7.5 percent, a person familiar said. Country Garden Holdings Co. and Guotai Junan Securities Co. are also offering debt in the U.S. currency, separate people said.
Miners in the world’s largest coal-consuming nation are struggling as excess supply depresses prices and China moves to rebalance its economy away from so-called smokestack industries. A new tax on the sector, expected to take effect soon, may increase pressures further, squeezing out small or weak producers, Fitch said in a report yesterday.
“While Fitch expects coal prices to stabilize as customers start re-stocking and more of the smaller miners in China close, market conditions aren’t likely to improve meaningfully in the next 12 to 24 months,” analysts led by Edwin Lam wrote in the May 14 report. “The proposed perpetual bond provides additional liquidity to Yancoal to weather the more challenging business conditions and reduces refinancing pressure on the company.”
Yanzhou plans to use the proceeds from its sale for capital expenditure in Australia, and to refinance maturing debt, Fitch said in the report.
The miner abandoned a proposal to buy out its Australian unit, Yancoal Australia Ltd., in March, with the company’s chief financial officer saying the privatization wasn’t in the interests of shareholders. Yanzhou has 10 billion yuan ($1.6 billion) of domestic debt due by the end of 2015, data compiled by Bloomberg show.
Chinese developer Country Garden is marketing five-year securities which can be bought back after three years at a yield of about 8.375 percent, the person with knowledge of that offering said, asking not to be identified because the terms aren’t set.
It last tapped public bond markets in September, raising $750 million via a sale of 7.25 percent 2021 notes, according to data compiled by Bloomberg. Those notes are yielding 8.732 percent versus 7.413 percent at the start of the year.
Beijing-based Guotai Junan plans to sell its five-year debentures at about 240 basis points more than Treasuries, another person said. The bonds are supported by a standby letter of credit from Bank of China Ltd.’s Sydney branch.
The cost of insuring corporate and sovereign bonds against non-payment in the Asia-Pacific region outside Japan rose today.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan gained 0.5 basis point to 117 basis points as of 8:31 a.m. in Hong Kong, Royal Bank of Scotland Group Plc prices show. The gauge, which touched an almost one-year low of 115.8 basis points yesterday, is set for its first gain in four days, according to data provider CMA.
The Markit iTraxx Australia index added 0.5 basis point to 89.5 basis points as of 10:10 a.m. in Sydney, according to Westpac Banking Corp. The benchmark is poised to rise for the first time since May 6, 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 was little changed at 82.75 as of 9:11 a.m. in Tokyo, Citigroup Inc. prices 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.