Bloomberg News

Dollar Proves Top Choice With Record Asia Sales

May 02, 2012

New York-based Goldman Sachs, the fifth-biggest U.S. bank by assets, sold $2 billion of debt on April 30. Photographer: Jin Lee/Bloomberg

New York-based Goldman Sachs, the fifth-biggest U.S. bank by assets, sold $2 billion of debt on April 30. Photographer: Jin Lee/Bloomberg

Borrowers in Asia issued a record amount of dollar-denominated bonds in April as they sought funds to expand in the world’s fastest-growing region and tapped investor demand amid a drop in global debt sales.

From China to South Korea and Indonesia, offerings surged to $15.5 billion, the most for any month in data compiled by Bloomberg going back to 1999. That compares with a 45 percent slump in corporate bond sales worldwide to $223.3 billion, the least since December.

PT Pertamina, Indonesia’s state-owned oil-and-gas company, and China’s Cnooc Ltd. led issuance in an economy that will grow 7 percent this year, more than triple global output, according to data compiled by Bloomberg. Yields on Asian corporate debt fell to 5.1 percent from a more than two-year high of 7.3 percent in October, dropping about three times as fast as global peers, according to Bank of America Merrill Lynch indexes.

“Growth in Asia is solid and corporates need money,” Tim Condon, the chief Asia economist at ING Financial Markets in Singapore, said in a telephone interview on April 30. “Issuers don’t need the money in the advanced economies, as the U.S. is limping along and the euro zone is in an outright recession.”

Pertamina raised $2.5 billion from the sale of 10- and 30- year bonds last week, data compiled by Bloomberg show. The company plans to boost spending to “significantly increase production,” according to an April 19 Fitch Ratings report.

Cnooc Cuts Costs

Cnooc, China’s largest producer of offshore crude oil, cut borrowing costs by half a percentage point when it sold the largest dollar bond by a Chinese company in more than a year last week. The state-controlled oil and gas explorer offered $1.5 billion of notes due May 2022 to yield 3.891 percent, or 0.54 percentage point less than its sale of 10-year debt in January 2011. It also issued $500 million of 30-year securities.

There are “some exciting opportunities for issuers looking to extend the maturity on their funding,” Duncan Phillips, a director in Citigroup Inc.’s Asia debt syndicate in Hong Kong, said last week in an interview.

Elsewhere in credit markets, a benchmark gauge of U.S. company credit risk rose from the lowest level in almost a month, with the Markit CDX North America Investment Grade Index, which investors use to hedge against losses or to speculate on creditworthiness, climbing by 0.6 basis point to a mid-price of 94.5 basis points as of 12:30 p.m. in New York, according to prices compiled by Bloomberg.

Rate Swap Spreads

The index, which typically rises as investor confidence deteriorates and falls as it improves, ended yesterday at the lowest since April 4. Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

The U.S. two-year interest-rate swap spread, a measure of bond market stress, increased 0.27 basis point to 28.25 basis points as of 12:30 p.m. in New York. The gauge widens when investors seek the perceived safety of government securities and narrows when they favor assets such as corporate bonds.

Bonds of Chesapeake Energy Corp. are the most actively traded U.S. corporate securities by dealers today, with 187 trades of $1 million or more as of 12:31 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Chesapeake reported an unexpected first quarter loss and cut cash-flow estimates by as much as 48 percent while increasing the amount of assets it plans to sell, according to a statement from the Oklahoma City-based gas driller. The company’s $1.3 billion of 6.775 percent bonds due March 2019 fell 4 cents to 94.9 cents on the dollar as of 12:20 p.m. in New York, Trace data show.

Hutchison-Whampoa

Asian dollar bond sales may reach a record $90 billion by year-end, Mark Reade, a Hong Kong-based credit analyst at Credit Agricole SA, said by telephone this week. Issuance totaled $51.2 billion this year, the data show.

Offerings in 2012 may rise to as much as $100 billion, according to Anthony Arnaudy, the Hong Kong-based head of debt capital markets at Standard Chartered Plc. The bank forecasted $81 billion of Asia dollar-denominated sales at the start of the year, he said.

Hutchison-Whampoa Ltd., billionaire Li Ka-shing’s biggest company, is marketing $1 billion of dollar-denominated perpetual notes today to yield 6 percent, according to a person familiar with the offering.

“Once the light switch is on, everything is arguing in favor of issuance,” said Condon at ING. “That light switch was flipped at the end of 2011 and it’s going to remain on all year. It’s going to be a great year for the bankers.”

‘Longer-Dated Offerings’

HSBC Holdings Plc and JPMorgan have managed the most Asian dollar bond sales this year, according to data compiled by Bloomberg. Standard Chartered is in third place. Citigroup and Barclays Plc arranged the Cnooc (883) and Pertamina deals.

“We’ve had a busy Asia pipeline over the last few weeks and one of the main themes coming through is the extremely strong demand for our longer-dated offerings,” said Phillips at Citigroup.

Emerging-market bond funds had inflows for 12 straight weeks through the first week of April, according to data from EPFR Global, a U.S. provider of fund flows. Investors put $540 million into emerging-market fixed-income funds in the week ended April 25, EPFR said.

Asian corporate debt returned 5.67 percent this year as U.S. company bonds gained 3.75 percent, according to Bank of America Merrill Lynch indexes.

Global Economy

The extra yield investors demand to own notes of companies in Asia instead of government debt shrank almost 1 percentage point to 4.12 percentage points at the end of April, according to the Merrill Lynch indexes. The spread on U.S. corporate bonds tightened 0.54 percentage point to 2.03 percentage points.

Asia will probably outperform the global economy, which analysts estimate will expand 2.27 percent by Dec. 31, data compiled by Bloomberg show. The so-called BRIC nations of Brazil, Russia, India and China are forecast to expand 6.52 percent in 2012. Asia has grown faster than all other regions since 2008, the data show.

Moody’s raised Indonesia’s credit rating to Baa3, or the lowest investment grade, in January following a similar move by Fitch Ratings a month earlier. S&P affirmed the nation’s rating at BB+ April 23.

Pertamina’s offering was its third after the company first tapped the international market in May 2011. The Jakarta-based company’s $1 billion of May 2021 notes traded at 304 basis points more than similar-maturity Treasuries yesterday, according to Royal Bank of Scotland Group Plc prices. The securities were sold at a spread of 235 basis points a year ago.

Oil Discoveries

Mochamad Harun, a spokesman for Pertamina, declined to comment on the latest offering, saying that the company would make a statement in due course.

The day before its bond sale, Beijing-based Cnooc said it had made five new oil discoveries this year, which would help it reach its goal of increasing annual production by as much as 10 percent.

“The new offering further implements the company’s strategic plan to enhance our financial flexibility by tapping various funding sources to support business growth,” Zhong Hua, the chief financial officer of Cnooc, said in a statement to Hong Kong’s stock exchange on April 26 after the sale.

Cnooc’s media department didn’t immediately respond to two phone calls and an e-mail requesting comment yesterday, a public holiday in China.

Asia Not ‘Immune’

Asia’s economy may falter should Europe’s sovereign debt crisis intensify, the International Monetary Fund warned in a report last week. Also, an economic “hard landing” in China from a real-estate crash is a low probability risk that may derail growth around the region, the IMF said.

China is expected to grow 8.4 percent in 2012, down from 9.2 percent last year, according to the median estimate of economists strategists surveyed by Bloomberg.

“If we do see an escalation of issues in Europe or with the U.S. fiscal cliff, Asia won’t be immune,” said Bryan Collins, a money manager at FIL Ltd, which operates as Fidelity Worldwide Investment. “But when there are jitters about valuations, the prospects for underperformance from Asia is much less than in Europe or the U.S.”

To contact the reporter on this story: Rachel Evans in Hong Kong at revans43@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net


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