China Bad Bank Cinda Plans Debut Dollar Bond as Local Loans Sour
China Cinda Asset Management Co. (1359), one of four state-owned managers of soured loans, is planning a debut sale of dollar-denominated bonds as the nation grapples with rising non-performing debt.
Cinda is slated to meet investors in Asia, Europe and the U.S. from May 2, a person familiar with the matter said today. China Overseas Land & Investment Ltd., Lenovo Group Ltd. and Shui On Land Ltd. (272) are also marketing notes in the U.S. currency, as well as issuers from South Korea, the Philippines and the United Arab Emirates, according to separate people with knowledge of the details.
Bad loans at China’s top 10 listed banks surged 19.5 percent last year, PricewaterhouseCoopers said April 22. China Construction Bank Corp., the second-largest lender, reported a 6.4-percent rise in such debt in the first quarter. Cinda raised the equivalent of $2.4 billion from a Hong Kong initial public offering in December as it moved to enhance distressed asset management.
“Bank NPLs will probably continue to rise for the short-term,” said Kaushik Rudra, the Singapore-based global head of credit research at Standard Chartered Plc. “The mood is definitely more cautious than it was a year or so back but, when you look at what’s happening from the supply side, the demand for paper out of China continues to be reasonably strong.”
Chinese banks’ non-performing loans rose for a ninth straight quarter in the three months through December to the highest level since the 2008 financial crisis, the China Banking Regulatory Commission said in February.
Cinda plans to use the proceeds from any bond sale for working capital, investment and other general purposes. It’s scheduled to meet investors in Hong Kong, London and Los Angeles on May 2; Hong Kong, Singapore and Boston on May 5; and Singapore and New York on May 6, the person familiar said, asking not to be identified because the terms aren’t set.
China Overseas Land, which gets more than 93 percent of its revenue from the world’s second-largest economy, plans to sell five-year bonds at about 270 basis points more than Treasuries, another person said. The company also intends to issue 10-year notes at about 350 basis points more than U.S. government debt.
Lenovo, the Beijing-based computer maker, is marketing five-year securities at a spread of about 320 basis points more than the benchmark, a separate person said. Shui On Land plans to sell four- and six-year bonds to fund an exchange offer, another person said.
Korea Resources Corp., the Philippines’ SMC Global Power Holdings Corp. and Abu Dhabi National Energy Co. also plan to price dollar debt today, other people said. Korea Resources is offering as much as $340 million of five-year notes at about 140 basis points more than Treasuries, while SMC is marketing perpetual bonds at about 7.625 percent, separate people said.
Abu Dhabi National Energy, known as Taqa, is considering pricing $750 million of bonds due 2024 at about 135 basis points over mid-swaps, another person said.
The cost of insuring Asia-Pacific corporate and sovereign bonds from default fell today, according to traders of credit-default swaps.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan slipped 1 basis point to 126.5 basis points as of 9:07 a.m. in Hong Kong, Australia & New Zealand Banking Group Ltd. prices show. The gauge is set for its lowest close since April 24, snapping three days of gains, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.
The Markit iTraxx Australia index declined 1 basis point to 98.5 basis points as of 11:06 a.m. in Sydney, according to ANZ. The measure is on course for its lowest close since April 25, according to data provider CMA.
Markets in Japan are closed today for a national holiday.
Credit-default swap indexes are benchmarks for protecting 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.