Hengdeli Holdings Ltd. (3389) and Longfor Properties Co. are selling U.S. dollar-denominated notes as high-yield offerings from the region surge to a 10-month high. Bond risk fell.
Hengdeli, the retailer of Swiss watches in China, is marketing five-year securities at a yield of about 6.875 percent, while developer Longfor is offering 10-year bonds at about 7 percent, people familiar with the deals said. DBA Telecommunication (Asia) Holdings Ltd. is selling five-year debt yielding about 12 percent, a separate person said. All three prospective issues hold non-investment grade ratings.
Shimao Property Holdings Ltd. (813) led $3.6 billion of junk bond sales from Asia outside Japan in the U.S. currency this month, already the most since $3.9 billion was sold in all of March, data compiled by Bloomberg show. Average yield premiums on speculative-grade bonds dropped to 342 basis points more than Treasuries on Jan. 7, the least since August 2011, according to JPMorgan Chase & Co. indexes.
High-yield spreads have “compressed over 100 basis points over the last three months and demand remains robust for high- yield bonds,” Krishna Hegde, the Singapore-based head of Asia credit research at Barclays Plc, said. “For issuers, it’s attractive to sell bonds at these levels and diversify their funding profile.”
High-yield bonds, also known as non-investment grade, speculative-grade or junk, hold ratings lower than BBB- from Standard & Poor’s and Fitch Ratings, or the equivalent Baa3 from Moody’s Investors Service.
Hengdeli’s bond is expected to be rated one step below investment grade at Ba1 by Moody’s and BB+ by Fitch, according to e-mailed statements from the risk assessors. Longfor’s notes will probably be rated Ba3 by Moody’s and BB by S&P. DBA’s debt will likely carry a B+ rating from Fitch, the fourth-highest junk ranking.
Investment-grade issuers of U.S. dollar bonds in Asia were also active today. Sime Darby Bhd. (SIME) is marketing five-year sukuk at 150 basis points more than similar-maturity Treasuries and 10-year securities at a 165 basis-point spread, a person familiar with the offering said. The bonds, structured to comply with Sharia law which bans interest payments, have an expected A grade from Fitch, the sixth-highest level.
Shinhan Bank, the South Korean lender, is offering 5.5-year securities at a 140 basis-point spread, a separate person said, asking not to be identified because the terms aren’t final.
“It’s not a surprise that we’ve seen a combination of maiden issuers and seasoned borrowers,” Hegde said. “The issuance spurt is primarily a function of price which in turn is driven by investors searching for yield.”
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan retreated one basis point to 106 basis points as of 8:29 a.m. in Singapore, Royal Bank of Scotland Group Plc prices show. The benchmark, which has ranged from 102.8 to 110.1 this year, is poised for its lowest close since Jan. 14, according to data provider CMA.
The Markit iTraxx Japan index declined 1.5 basis points to 136.5 as of 9:21 a.m. in Tokyo, according to Deutsche Bank AG prices. The measure is set for its lowest close since March 19, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.
The Markit iTraxx Australia index dropped one basis point to 114 as of 10:35 a.m. in Sydney, according to Australia & New Zealand Banking Group Ltd. prices. The gauge is also set for its lowest close since Jan. 14, CMA 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.
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