ASIA CREDIT CLOSE: SPREADS WIDEN AS NEW ISSUES UNDERPERFORM

Asian credit markets extended their losing streak on Wednesday as investors struggled to digest new issues and aggressive pricing at a time of slowing economic growth.

Total G3 currency bond sales from Asia, excluding Japan, has already topped USD12.5bn in September. That is among the highest monthly tallies for 2012, already the busiest year on record.

But the poor performance of recent issues is likely to put the brakes on further supply with growth concerns remaining elevated.

The itraxx Asia ex-Japan investment grade index widened out to 142/144bp from Tuesday’s 136/137bp, with the recent issues being the notable underperformers.

“Its been a very strong month for supplies at a time when we are near the year tights. Some indigestion was natural,” said a Singapore based trading head who said the selling was not aggressive, terming it a “healthy correction”.

Doosan Infracore’s 30NC5 bonds were the outperformers today, with the long bonds tightening to 249bp from a reoffer of 265bp despite an unusual structure.

Analysts said the fair value for the bond should be in the 240bp region and there was more room for spreads to tighten.

In contrast, recently issued bank bonds from Thailand and Malaysia underperformed with Indian deals holding steady.

Bangkok Bank 2018s are trading at around 215/205bp compared with last week’s reoffer price of 212.5bp. The 10-year tranche of that offering is off in a big way trading at 240/230bp compared with the reoffer of 215bp, representing more curve steepening.

“People are worried about showing offers on the screens, afraid they will get hit. It’s small selling, but at these levels don’t expect much more widening,” said a sales trader with a European bank.He said the issue size of USD800m for the longer bond – twice the amount raised by the 2018s – was also a possible reason for the weak performance.

Malaysian lender Maybank’s Lower Tier 2 also suffered on account of its size. The USD800m offering was priced at 260bp but is now trading closer to 300bp. Acquisition concerns are also expected to prolong the weak run.

Maybank was named as one of the suitors for GE’s 32.98% stake in Thai lender Bank of Ayudhya. Since then, GE has sold a 7.6% stake in the bank to institutional investors and the shareholding now stands reduced to 25.3%.

“Thailand is the only market in which the group does not have a commercial banking platform to complement its brokerage business,” said OSK analyst Keith Wee, who added that Maybank could “buy a smaller scale bank with turnaround potential” in that country.

CITIC Bank’s Lower Tier 2 bonds are trading at 345/335bp compared with the reoffer price of 325bp.

Indian paper is holding up relatively well with the IDBI 2018s at 368bp and NTPC 2017 at 304/300bp just around the re-offer spread of 370bp and 305bp.

Traders say hopes of improving macroeconomic conditions and reforms are driving this performance, with buying from retail and real money investors.

The ICICI 2018s are at 335bp, State Bank of India 2017s at 305bp and EXIM Bank, the only Indian bank in the EMBI index, is at 275bp. ICICI’s 2018s were sold at 400bp, SBI at 375bp and EXIM at 355bp.

The high-yield space continues to see recent offerings trade below their issue price, with Trade and Development Bank of Mongolia’s level of 96 versus a reoffer of 99.676 one of the reasons behind Xacbank’s decision to put off its dollar bond debut.

Other recent deals which are trading below reoffer are Fantasia at 97 versus an issue price of 99.472.

Bumi’s 2017 continued to be volatile rebounding on some bottom fishing purchases to 75/77, a gain of around 5 points even as S&P lowered the rating to B+ from BB-. Analysts said the company’s bonds are already trading at CCC levels comparing it with Hidili which trades at similar yields of 18%-19%.

(umesh.desai@thomsonreuters.com)