Fri, Nov 18, 2011
India’s IDBI Bank Ltd. (IDBI) says it cut a percentage point off its dollar funding costs by going to Hong Kong’s Dim Sum bond market, where appetite for a strengthening Chinese yuan is offsetting concern over emerging-market risk.
IDBI Bank sold 650 million yuan ($102 million) of three- year notes to yield 4.5 percent on Nov. 11, converted the proceeds to dollars and used swap contracts to eliminate any exchange-rate risk, said Melwyn Rego, an executive director at the state-backed lender. The yield on IDBI’s dollar bonds due February 2016 rose 101 basis points in the past three months to 5.17 percent, Royal Bank of Scotland Group Plc prices show.
“We have been able to raise money, on a swapped basis, 100 basis points finer than what we would have got had we accessed the regular dollar bond market,” Rego said on Nov. 16 in Mumbai.
Yuan deposits in Hong Kong more than quadrupled to a record 622 billion yuan in the last four quarters as the currency strengthened 4.8 percent versus the dollar, the best performance among 25 emerging-market currencies tracked by Bloomberg. Expectations for further appreciation are spurring demand for assets denominated in yuan.
The average yield of 3.65 percent for Dim Sum bonds compares with the maximum one-year deposit rate of 0.6 percent offered on the website of HSBC Holdings Plc’s Hong Kong unit.
IDBI Bank’s debt is rated BBB- at Standard & Poor’s, the lowest of 10 investment grades, and Rego said it’s become more costly for the lender to borrow dollars directly “because of very difficult conditions in international markets and the general flight to safety.”
Risk Aversion
The average yield on emerging-market companies’ dollar debt climbed 38 basis points, or 0.38 percentage point, in the past three months to 6.09 percent, JPMorgan Chase & Co. data show. It reached a two-year high of 7.14 percent on Oct. 4 as the MSCI Emerging Markets Index of shares sank to the lowest level since September 2009. The yield on 10-year U.S. Treasuries touched a record-low 1.70 percent on Sept. 22 the worsening debt crisis in Europe prompted investors to seek OUT the safest dollar- denominated assets.
IDBI Bank was the first Indian issuer of Dim Sum bonds and Rego said the lender will tap the market again, though “not in the immediate future.” Infrastructure Leasing & Financial Services Ltd., an Indian lender to road and power projects, plans to raise about $100 million through yuan-denominated bonds, Milind Patel, the deputy managing director, said on Sept. 20 in Mumbai.
‘Clever Swap’
“It makes sense from a financial engineering point of view that you can raise money in yuan if conditions are favorable,” Edmund Harriss, who oversees a $92 million Dim Sum bond fund as a London-based Investment Director at Guinness Atkinson Asset Management Inc. “You can do a very clever swap and get a pickup that way.”
IDBI Bank was able to secure cheap funds in the Dim Sum bond market in part because of its state backing, said Diederik Werdmolder, head of fixed-income portfolio management at SinoPac Securities (Asia) Ltd. in Hong Kong. The government owns 65.1 percent of IDBI, according to data compiled by Bloomberg.
Lafarge Shui On Cement Ltd., a joint venture between Lafarge SA (LG) and SOCAM Development Ltd., paid a 9 percent coupon on 1.5 billion yuan of Dim Sum bonds sold last week. Paris-based Lafarge, the world’s biggest cement maker, guaranteed the securities and has a BB+ credit rating at S&P, one level below investment grade. The company’s ratings were downgraded to junk by S&P, Moody’s Investors Service and Fitch Ratings this year.
Property Clampdown
“The bond market is still more interested in investment- grade issues and below-investment-grade issues require a relatively large risk premium, certainly in industries that are facing their own set of difficulties,” Werdmolder said. “The cement business is not very popular these days with the Chinese government trying to slow down the real-estate sector.”
China’s cabinet raised minimum mortgage rates and down- payment ratios for some home purchases in April last year, saying “more forceful” steps were needed to cool speculation. Authorities imposed housing purchase restrictions in about 40 cities in 2011. Premier Wen Jiabao said on Nov. 7 that the government won’t rein in efforts to cool the property market.
Five-year credit-default swaps protecting China’s sovereign debt fell two basis points yesterday to 146 basis points, according to data provider CMA, which compiles prices quoted by dealers in the privately negotiated market. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
Highest Yield
The yuan weakened 0.16 percent this week and 0.03 percent today as of 10:44 a.m. to 6.3526 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The currency will gain 4.7 percent to 6.07 by the end of 2012, based on the median estimate of 21 analysts surveyed by Bloomberg. The yield on the 3.26 percent government bond due in June, 2014, added two basis points to 3.13 percent.
Lafarge Shui On’s coupon matched the highest rate paid since the Dim Sum bond market began in 2007. Credit China Holdings Ltd. sold 100 million yuan of two-year bonds with a 9 percent coupon on Sept. 1.
The yield on China Shanshui Cement Group Ltd. (691)’s 6.5 percent Dim Sum bonds due in July 2014 was 9.53 percent yesterday, down from a record 15.63 percent on Oct. 6, RBS prices show. The rate on Guangzhou R&F Properties Co.’s 7 percent notes due April 2014 has declined to 20.55 percent since peaking last month at 25.51 percent. The average yield in the Deutsche Bank AG Offshore Renminbi Bond Index dropped two basis points to 3.65 percent yesterday, up 11 basis points this month and 191 in 2011.
“Clearly, as more issues come to the market, people are going to be more selective,” said Harriss at Guinness Atkinson. “The trend will surely be for higher yields and more robust structures.”
for more read article at sourced Bloomberg
India’s IDBI Bank Ltd. (IDBI) says it cut a percentage point off its dollar funding costs by going to Hong Kong’s Dim Sum bond market, where appetite for a strengthening Chinese yuan is offsetting concern over emerging-market risk.
IDBI Bank sold 650 million yuan ($102 million) of three- year notes to yield 4.5 percent on Nov. 11, converted the proceeds to dollars and used swap contracts to eliminate any exchange-rate risk, said Melwyn Rego, an executive director at the state-backed lender. The yield on IDBI’s dollar bonds due February 2016 rose 101 basis points in the past three months to 5.17 percent, Royal Bank of Scotland Group Plc prices show.
“We have been able to raise money, on a swapped basis, 100 basis points finer than what we would have got had we accessed the regular dollar bond market,” Rego said on Nov. 16 in Mumbai.
Yuan deposits in Hong Kong more than quadrupled to a record 622 billion yuan in the last four quarters as the currency strengthened 4.8 percent versus the dollar, the best performance among 25 emerging-market currencies tracked by Bloomberg. Expectations for further appreciation are spurring demand for assets denominated in yuan.
The average yield of 3.65 percent for Dim Sum bonds compares with the maximum one-year deposit rate of 0.6 percent offered on the website of HSBC Holdings Plc’s Hong Kong unit.
IDBI Bank’s debt is rated BBB- at Standard & Poor’s, the lowest of 10 investment grades, and Rego said it’s become more costly for the lender to borrow dollars directly “because of very difficult conditions in international markets and the general flight to safety.”
Risk Aversion
The average yield on emerging-market companies’ dollar debt climbed 38 basis points, or 0.38 percentage point, in the past three months to 6.09 percent, JPMorgan Chase & Co. data show. It reached a two-year high of 7.14 percent on Oct. 4 as the MSCI Emerging Markets Index of shares sank to the lowest level since September 2009. The yield on 10-year U.S. Treasuries touched a record-low 1.70 percent on Sept. 22 the worsening debt crisis in Europe prompted investors to seek OUT the safest dollar- denominated assets.
IDBI Bank was the first Indian issuer of Dim Sum bonds and Rego said the lender will tap the market again, though “not in the immediate future.” Infrastructure Leasing & Financial Services Ltd., an Indian lender to road and power projects, plans to raise about $100 million through yuan-denominated bonds, Milind Patel, the deputy managing director, said on Sept. 20 in Mumbai.
‘Clever Swap’
“It makes sense from a financial engineering point of view that you can raise money in yuan if conditions are favorable,” Edmund Harriss, who oversees a $92 million Dim Sum bond fund as a London-based Investment Director at Guinness Atkinson Asset Management Inc. “You can do a very clever swap and get a pickup that way.”
IDBI Bank was able to secure cheap funds in the Dim Sum bond market in part because of its state backing, said Diederik Werdmolder, head of fixed-income portfolio management at SinoPac Securities (Asia) Ltd. in Hong Kong. The government owns 65.1 percent of IDBI, according to data compiled by Bloomberg.
Lafarge Shui On Cement Ltd., a joint venture between Lafarge SA (LG) and SOCAM Development Ltd., paid a 9 percent coupon on 1.5 billion yuan of Dim Sum bonds sold last week. Paris-based Lafarge, the world’s biggest cement maker, guaranteed the securities and has a BB+ credit rating at S&P, one level below investment grade. The company’s ratings were downgraded to junk by S&P, Moody’s Investors Service and Fitch Ratings this year.
Property Clampdown
“The bond market is still more interested in investment- grade issues and below-investment-grade issues require a relatively large risk premium, certainly in industries that are facing their own set of difficulties,” Werdmolder said. “The cement business is not very popular these days with the Chinese government trying to slow down the real-estate sector.”
China’s cabinet raised minimum mortgage rates and down- payment ratios for some home purchases in April last year, saying “more forceful” steps were needed to cool speculation. Authorities imposed housing purchase restrictions in about 40 cities in 2011. Premier Wen Jiabao said on Nov. 7 that the government won’t rein in efforts to cool the property market.
Five-year credit-default swaps protecting China’s sovereign debt fell two basis points yesterday to 146 basis points, according to data provider CMA, which compiles prices quoted by dealers in the privately negotiated market. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
Highest Yield
The yuan weakened 0.16 percent this week and 0.03 percent today as of 10:44 a.m. to 6.3526 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The currency will gain 4.7 percent to 6.07 by the end of 2012, based on the median estimate of 21 analysts surveyed by Bloomberg. The yield on the 3.26 percent government bond due in June, 2014, added two basis points to 3.13 percent.
Lafarge Shui On’s coupon matched the highest rate paid since the Dim Sum bond market began in 2007. Credit China Holdings Ltd. sold 100 million yuan of two-year bonds with a 9 percent coupon on Sept. 1.
The yield on China Shanshui Cement Group Ltd. (691)’s 6.5 percent Dim Sum bonds due in July 2014 was 9.53 percent yesterday, down from a record 15.63 percent on Oct. 6, RBS prices show. The rate on Guangzhou R&F Properties Co.’s 7 percent notes due April 2014 has declined to 20.55 percent since peaking last month at 25.51 percent. The average yield in the Deutsche Bank AG Offshore Renminbi Bond Index dropped two basis points to 3.65 percent yesterday, up 11 basis points this month and 191 in 2011.
“Clearly, as more issues come to the market, people are going to be more selective,” said Harriss at Guinness Atkinson. “The trend will surely be for higher yields and more robust structures.”
for more read article at sourced Bloomberg
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