Bloomberg News

Guangzhou R&F Marketing Junk Dollar Bonds as Credit Risk Climbs

August 22, 2012

Guangzhou R&F Properties Co. (2777) began marketing Asia’s second U.S. dollar-denominated junk bond this month as offerings of high-yield debt slow amid limited investor appetite for riskier assets. Credit risk rose.

The Chinese property company is marketing a $200 million increase to its existing notes due April 2016 at a yield of about 12.375 percent, a person familiar with the matter said, asking not to be identified because the matter is private. Sound Global Ltd. (SGL) was the last junk-rated dollar borrower from Asia, selling $150 million of five-year notes Aug. 6 with an 11.875 percent coupon, data compiled by Bloomberg show.

High-yield dollar bond sales in the Asia-Pacific region plunged 33 percent to $9.5 billion this year from the same period of 2011 as Europe’s debt crisis worsened, threatening economic growth in exporting nations such as China. The region is diverging from the U.S., where junk offerings set a record for August even amid concern the market for the riskiest corporate debt has peaked.

“The market is practically shut for new names and investors are still being very selective in the high-yield space,” Keith Chan, a Hong Kong-based credit analyst at HSBC Holdings Plc, said in a telephone interview. “Repeat issuers, at the right price, will still find demand.”

Investment-grade debt is rated at least Baa3 by Moody’s Investors Service or BBB- by Standard & Poor’s. Bonds with lower ratings, or no ratings, are typically known as junk, speculative-grade, or high-yield.

Guangzhou Bonds

Guangzhou R&F Properties sold its first lot of dollar- denominated notes due 2016 in April last year, issuing $150 million of the securities at a yield of 10.875 percent. The company doesn’t have a debt grade from S&P, Moody’s or Fitch Ratings, Bloomberg data show.

Westpac Banking Corp. (WBC) is marketing a benchmark-sized sale of subordinated U.S. dollar notes that will be eligible as Tier 2 capital, a separate person familiar with the matter said today. The notes, due in 10 1/2 years and callable after 5 1/2 years, may yield about 310 basis points more than Treasuries, the person said.

The sale follows a spate of investment-grade U.S. dollar offerings from Indian lenders. Axis Bank Ltd., ICICI Bank Ltd., Union Bank of India and Indian Overseas Bank sold $1.85 billion of notes since Aug. 13, data compiled by Bloomberg show.

Axis Bank, rated Baa3 by Moody’s, added $250 million to its existing dollar bonds due 2017 at a spread of 390 basis points more than Treasuries yesterday, according to the data. Mumbai- based Axis received orders of about $1.9 billion from 134 accounts, a person familiar with the matter said today. Investors in Asia bought 72 percent of the deal, the person said.

Bond Risk

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan increased 1 basis point to 146 basis points as of 8:43 a.m. in Hong Kong, Royal Bank of Scotland Group Plc prices show. The gauge reached a five-month low of 145.8 basis points on Aug. 20, according to data provider CMA.

Investor concern that the global slowdown will harm economic growth in Asia deepened after both Japan and Taiwan were hurt by a contraction in demand. Japan reported its ninth trade deficit in 12 months today while Taiwan’s jobless rate increased in July as its economy shrank.

Japan had a July trade deficit of 517.4 billion yen ($6.5 billion) as the turmoil in Europe curbed exports.

Japan CDS

The Markit iTraxx Japan index advanced 1 basis point to 188.5 as of 9:15 a.m. in Tokyo, Deutsche Bank AG prices show. The index is on course for its highest close since Aug. 8, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

The Markit iTraxx Australia index dropped 0.75 of a basis point to 149.25 basis points as of 10:15 a.m. in Sydney, according to Deutsche Bank.

Credit-default swap indexes are benchmarks for protecting 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. A basis point is 0.01 percentage point.

To contact the reporter on this story: Tanya Angerer in Singapore at tangerer@bloomberg.net

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


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