Bonds In Conversation : Off to A Roaring Start – India 1 China 0

The year took off with the first SGD corporate issue 2 days back and market darling ICICI (Baa3/BBB-) garnering SGD 3 bio in orders for a SGD 225 mio 7Y deal. The bond rallied to a post auction high of 100.50 but I heard some unwitting retail buyers bought as high as 102.00. Interestingly, EXIMBK 3.375% Sep 2017 rallied more upon this deal, going up by almost 1 dollar to a historic high of 101.625 from 100.75 before ICICI.

News have not been too hot with negative headlines out of 2 China corps in the first week of 2013. Zoomlion (BB+) which just recently issued a 10Y USD paper at 6.125% was accused of improper accounting while Agile (Ba2/BB) had its CEO in some KTV assault scandal. None of that had any effect on the chinese issues this week we saw out of Hopson and Shimao. Hopson went on to defy odds on the fact that they nearly defaulted just a few months back, to print a coupon under 10% (at 9.875% ) !!! and rallied on to 102 after the issue.

And the most talked about Prudential Plc Perp (Baa1/BBB+). Books were 17 bio for a USD 700 mio issue. Coupon cut all the way down to 5.25%. So I am not surprised that the bond is at 100.10 now because the coupon cuts off all the fats that was to be profits. Very much like our own Singapore Govt 30Y paper which was the best performer in the market last year, rallying to 110 at its high. It opened the year 106 and never looked back, crashing down to 103 without much impact on corporates except for the HDBs which came off along with higher rates.

Some price updates (as of mid morning).

Issuer Name	Amount USD (Mln)	Industry	Coupon	Maturity	BID PRICE	MOODYS	FITCH
HOPSON DEVELOPMENT HLDGS	300	Real Estate	9.875	16-Jan-18	101.75	Caa1
SHIMAO PPTY HLDNG LTD	800	Real Estate	6.625	14-Jan-20	98.25	B1	BB
COUNTRY GARDEN HLDG CO	750	Real Estate	7.5	10-Jan-23	103.00	Ba3
KAISA GROUP HOLDINGS LTD	500	Real Estate	10.25	8-Jan-20	105.88	B1

My view is that there is a high chance of Chinese monetary policy tightening this year as part of their economic restructuring process. It may have escaped the notice of the masses and the mass media that Chinese loan growth data shows a slowing as the news hype was on the export numbers, as reporters choose to emphasise. Higher interest rates does not really bode well for real estate which had a very troubled 2012 despite a powerful ending.

So, best to go easy on China high yield bonds.

Yet the rally must go on. Now I am confused. Am I trading stocks or bonds ?

Olam Special

After calming markets, I believe we are seeing some bank analysts rushing for the exit. UBS downgraded Olam to a SELL this week (target 1.33), much to my astonishment. Citing the company’s African exposures, in particular Gabon which is expected to have a significant cost overrun of several hundred million dollars. Not to worry, Temasek to the rescue and of course, more bonds ?

And Temasek did use to be a large shareholder of ICICI too !

OLAMSP 6 10/25/22	SGD	91.98
OLAMSP 5 3/4 09/20/17	USD	94.40
OLAMSP 2 1/2 09/06/13	SGD	98.60
OLAMSP 5.8 07/17/19	SGD	92.57
OLAMSP 7 09/29/49	SGD	84.93
OLAMSP 6 08/10/18	SGD	92.01

Ps : There were 2 other SGD issues namely, the HPL 5Y 3.5% SGD 45 mio and FCT 3% 8Y SGD 70 mio.