Bond Market Buzz
Big day today, right after FOMC minutes less than 6 hours ago.
8 Jan 2015
Coupon Payments
We have 2 distressed bonds due for their coupon payments – Kaisa 10.25% 01/2020 USD 500 mio and Berau Coal 12.5% 07/2015 USD 450 mio (callable 14 Jan at 103.13 – forget it !).
Kaisa is trading at 30 cts to the dollar now and Berau is somewhat better, at about 47-50 cts.
(Bloomberg) — Kaisa Group Holdings has an about 80% chance it will miss the coupon payment on its 10.25% 2020 bonds tomorrow, CreditSights said in an e-mailed report today.
- Payment is due by 11:59pm, Asia time, Jan. 8: CreditSights
- “Given that Kaisa was unable to repay the HK$400m HSBC loan, we think there is a high probability that the company will miss its coupon payment tomorrow,” analyst Cheong Yin Chin wrote
- Should Kaisa miss its coupon payment, it will be the first China property issuer to default on its USD bonds: CreditSights
- “Our last investor relations contact in Kaisa left the company yesterday,” Cheong wrote. “Sad to say, we have no other contacts at Kaisa and believe that most other market participants have no contacts either.”
(Bloomberg) — Berau Coal’s$450m 12.5% 2015 dropped 1.08 to 49.975 as of 9:28am HK time, according to Bloomberg prices, after Asia Resource Minerals warned of a default.
- NOTE: ARMs warned that if former Chairman Samin Tan is successful in his attempt to grab control of the board, it “would add significant uncertainty to the Berau 2015 notes maturity-extension process”: statement
- “The failure of that process would lead to default on the Berau 2015 notes and possible suspension of trading in ARMs shares and the loss of ARM’s premium listing”
Contagion seen in junk bond markets as the JPM High Yield Corporate Index rose to 8%, the highest since Sep 2013.
It is a polarised world now as 5 year JGB yields approach negative territory and 10Y US treasuries are holding comfortable under 2%.
Singapore
Singapore corporate bonds crippled by the rising SIBOR which has since stabilised and rumours of MAS intervention in the USDSGD and short term liquidity make their rounds.
We have Del Monte arranging for meetings this week in SG, HK and LDN. A USD deal seems more likely.
Malaysia
And Malaysia cannot avoid the scandals as 1MDB had to postpone their debt payment again after failing to settle last Nov. http://www.themalaysianinsider.com/malaysia/article/umno-leaders-police-report-against-1mdb-proves-fund-in-trouble-says-dap
1MDB FAILED TO REPAY 2B RINGGIT LOAN DUE DEC. 2014, EDGE SAYS
The firm has since hired a new President and executive director, former Deutsche big wig. http://mobile.reuters.com/article/idUSL3N0UK1P820150105?irpc=932
Best part is that PM Najib did warn about this last year. http://www.malaysia-today.net/its-hands-off-if-1mdbs-debts-collapse-says-najib/
(Bernama) – The government will not be liable to 1Malaysia Development Bhd’s (1MDB) debts if the company goes bankrupt, Najib Tun Razak said.
The prime minister said only loans amounting to RM5.8 billion taken by 1MDB had an explicit guarantee from the government while other loans did not.
“Like other companies governed by the Companies Act, 1MDB has limited liability, and apart from loans or bonds that had government guarantees, 1MDB’s financial matters are not included in the government’s contingent liabilities.
So it does not matter if the chap partied with Paris Hilton that the champagne is finished. http://www.asiasentinel.com/politics/malaysia-investment-fund-disaster/?fb_action_ids=10204585474051356&fb_action_types=og.likes
1MDB takes up about 3.8% of total Malaysian banking system loans that is concentrated in the hands of a few banks. Their IPO has been postponed due to lack of interest sometime last month.
Their USD 3 bio bond 1MDB Global Investments 4.4% 03/2023 is in the JPM Asian Bond Index. It has a letter of support signed by PM Najib which does not apparently constitute a proper guarantee. Tricky business.
Good luck !
Kaisa is the first China corporate bond default this year.
I wonder how many more defaults will be happened this year.
Last year we saw 4 defaults of China corporate bonds — Chaori Solar, Suntech Power, LDK Solar and China Forestry.
For China corporate bonds investors have to be very careful.
Those were onshore CNY so Kaisa would be the first offshore to default.
They have 30 days to pay up the coupon, so wait and see.
Hi Th,
Hope you will provide your opinion on this before the curtaincall for 2015..
I am overweight on bonds in olams usd/sgd issuance of 5.8%cpn and above..maturity max to yr 2022 .. I have china property issued bonds too but not kaisa fortunately and kangaroo bonds issued by rbs and nab ..
With everything factored in etc, why doesnt the bid ask price dropped at this juncture for the olam whereas the rest of my holdings have retraced..
Shld I hold /trimmed as I am 70% in olam ..I am just puzzled by the resilence in the price especially the noises in the fixed income and in local context wise with your pricing lists , it seems like issuers of big Boys name doesn’t face any widening bid-offer ..infallible ..
I do hope you could give some insight here..
Thank you Th
Hi Carm,
The Olam bond complex has held up reasonably well because it is now viewed in a very different light as compared to previously. With its newfound status as a semi-quasi GLC, I suspect it benefits from flight to quality flows as investors switch out of riskier bonds in the oil & gas space. Muddy who? 4-5% for 5year government linked risk seems like a decent deal.
Having said that, if you’re significantly overweight in the credit, trimming might not be a bad idea. The LTV for this name is not particularly good at a major PB here.
As for Chinese property, I don’t think Kaisa is a harbinger of broader systemic risk among the Chinese real estate issuers, but it does highlight the high level of corporate governance risk in this space. I must say that current levels on some of the bonds (double-B ~10%) in this space look interesting.
I could not have said it better. Welcome EDZ !