Wednesday, 23 December 2020

November 2020: 80% of Dollar Bonds In The Green on Vaccine Hopes

After a mixed bag in October, November saw a strong revival in demand for dollar bonds across the spectrum. Overall, 80% of the dollar bonds in our universe delivered a positive price return (ex-coupon). The box and whisker plot above shows how bonds moved in price terms (ex-coupon) in November – by credit rating. The horizontal line inside each of the six boxes indicates the median price return, while the box area above and below it represents the upper and lower quartile respectively. The dots that fall above and below the bounds are outliers with each dot representing a bond.

We can observe that cyclicals and those sectors/companies battered by the pandemic benefitted last month on the back of vaccine hopes as major pharma companies including Pfizer and BioNTech, AstraZeneca and Moderna announced highly effective results of its vaccine in advanced trials. Names like Carnival Corp, Royal Caribbean, American Airlines, Occidental, Macy’s  were beneficiaries as rotation trades gathered steam in the bond markets.

Both Investment Grade (IG) and High Yield (HY) performed well though the latter saw a higher share of gains. 89% of HY bonds in our universe delivered positive price returns in November vs. 75% for IG bonds.

Issuance Volumes and Largest Deals

Global corporate dollar issuance volume stood at $91.1bn, down 20% vs. October and up 82% vs. last November’s issuance of $50bn.

Asia ex-Japan G3 currency issuance stood at $33.6bn, down 38% vs. October’s issuance of $54.1bn and 26% lower vs. last November’s issuance of $45.7bn. Investment grade bonds dominated with new deals worth $21.5bn while high yield bonds issuance stood at ~$3.9bn, down 44% and 39% vs. October respectively.

Below are the largest deals in November sorted by issue size. The largest issuances globally was topped by Verizon, which raised a jumbo $12bn across five tranches, which also marked the fourth largest USD corporate issuance this year, the top three being Boeing’s $25bn, Oracle’s $20bn and AT&T’s $12.5bn in April, March and May respectively.

The largest issuances across the APAC and Middle East were led by Saudi Aramco’s jumbo $8bn deal across five tranches and China’s EUR denominated issuance worth €4bn ($4.75bn) across three tranches.

Top Gainers & Losers

The gainers globally included names beaten down on the back of the pandemic such as American Airlines, Nordstrom, Royal Caribbean, Carnival and Macy’s that are now seeing hopes of a recovery. Top losers both globally and across APAC & ME saw Chinese names in the forefront after a spate of defaults by SOEs caught markets by surprise. Chipmaker Tsinghua Unigroup led the losers list falling ~60% in the month despite a recovery from lows of 20.88 over the last two weeks. Chinese real estate developers Greenland Global and China Fortune Land also saw its dollar bonds sell-off on concerns over local government’s having a stake in the companies.

Meanwhile, Future Retail’s bonds rallied 14% last month after having fallen ~19% in October as the deal with Reliance Retail finally got approval from the Competition Commission of India

Tuesday, 3 November 2020

Hong Kong Bond Market - BondEvalue

Hong Kong’s bond market is one of the largest in Asia. Both issuers and investors from China and the rest of the world have participated in this market across domestic and foreign currencies. The bond market is also known for the offshore Renminbi bond issuances, also known as Dim Sum Bonds. The government has also taken a step in the green bond space since 2018 under the Government Green Bond Programme to showcase their support for sustainable development alongside contribution towards the climate and to promote the development of green issuance.

In 2019, Hong Kong dollar debt issuance totalled HK$4.18tn which was 2% higher than that in 2018. The Hong Kong Monetary Authority (HKMA) reported that HK$ issuance increased for a eleventh consecutive year last year, primarily driven by Exchange Fund Bills and Notes (EFBN) at HK$3.39tn. The overall outstanding size of Hong Kong dollar debt instruments were at HK$2.17tn.

In May 2019, the Government of the Hong Kong Special Administrative Region (HKSAR) of the People’s Republic of China offered its maiden green bond under the Government Green Bond Programme, with an issuance size of $1bn and a 5 year maturity. Additionally, two Sukuks issued under the Government Bond Programme were outstanding, each with an issuance size of $1bn. Overall, bond issuance by foreign issuers reduced in 2019 mainly owing to financial institutions and corporates. Local currency bonds outstanding across central banks, corporates and the government almost totalled to nearly $300bn in the quarter ending March 2020. The total value of outstanding Hong Kong dollar debt instruments remained stable over 12 months prior to March 2020.

Dim Sum bonds, termed after the popular delicacy are quite popularly known in the bond markets of Hong Kong with China Development Bank issuing the first Dim Sum bond in Hong Kong SAR in 2007 post which the Ministry of Finance in China issued RMB 6bn of Treasury Dim Sum bonds. While the Hong Kong bond market is well known for Dim Sum bond issuances which have picked up since debut, compared to the total Renminbi liquidity pool in Hong Kong, the outstanding size of Dim Sum bonds are quite small – around 0.9% of offshore renminbi deposits as of March 2018 going by the IMF’s analysis.

Most of the bond trading happens in the Over-the-counter (OTC) markets. Some bonds may be listed and traded on the Stock Exchange of Hong Kong Limited (SEHK), which is a wholly-owned subsidiary Hong Kong Exchanges and Clearing Limited (HKEX). 

Wednesday, 23 September 2020

Where to Find Bond Prices?

While a quick online search would return many results for the historical and current pricing data for stocks and mutual, the process of finding bond prices is less straightforward. Unlike stocks which are largely traded on exchanges, bonds are mostly traded over the counter via phone calls with brokers. For bond investors who do not have direct access to real-time financial data services such as Bloomberg Terminal, which are often used by analysts or finance professionals in sales and trading, the main source of their bond pricing data would come from their brokers.

Bond brokers may take advantage of the lack of price transparency in the bond market to markup bond prices and profit from the spread between the buy and sell transaction price. As a result, investors who call their brokers for bond price information often receive on a delayed basis a quoted price that includes the brokers’ commission fee and markup of a few basis points. This leaves many investors unclear over whether the price they are given is fair.

Investors seeking to find the price of a bond themselves may use bond-tracking websites. Sites such as Bloomberg, Reuters, or Morningstar publish government bond prices and yields, which are publicly available. However, insights on corporate bond pricing is more limited and not easily accessible. Investors may need to provide the specific bond International Securities Identification Number (ISIN). While it is also possible to use bond information such as the issuer, coupon, issue date, maturity date and issue size when searching for bond prices, investors must be careful as two separate ISINs with different prices can have very similar bond information.

The rise of bond information service platforms such as the BondEvalue app has increased the accessibility of bond price data, especially buy and sell price and yields, to investors, and has provided valuable insights such as duration, accrued interest, spread to its users.

Thursday, 6 August 2020

Trade Fractional Bonds on an Electronic Bond Exchange – BondbloX by BondEvalue





Bonds are fixed income instruments which are issued by an agency seeking debt and includes Sovereigns, local governments or corporates. These instruments are issued in the primary market and then traded in the secondary market similar to stocks. Traditionally, there has been a major difference between the trading of stocks and bonds. While stocks have been traded over exchanges, most bonds have been traded over the counter (OTC). OTC is a form of direct trading between two parties generally through an agent. Major reason for the bonds being traded over the counter was the sheer number of bonds issued vs the stocks issued. Equity is generally issued once or twice whereas bonds are issued several times over the lifecycle of the issuer. Further, the bonds of a company can also be of different tenor and with different coupon rates. Thus, there are many more variables associated with bond trading. In the past limited computational power and the wide spread of the bonds presented enormous challenges to these being traded over exchanges. Thus, these were traded OTC. However, with the improvement in technology, including increased computational power and block chain, trading of the bonds over exchanges has been made possible. Trading of the bonds is trending towards electronic bonds exchanges. Trading bonds over the exchanges has several advantages. The most important advantage is the transparency which the electronic exchange provides. The prices of the bonds have been historically very complex. Electronic exchanges bring much-required transparency in the bid-ask pricing. Another advantage of trading bonds over exchanges is the high liquidity presented by electronic exchanges. Bonds traded over the counter or through Exchange Traded Funds (ETF) have been highly illiquid. Electronic exchanges have large data capacities. This allows a larger number of the bonds to be listed. Another, important advantage of trading bonds over the electronic bond exchange is the low cost per trade and large volumes of trade possible over these exchanges. Only listed bonds would be traded over the bond exchange.

BondEvalue is a bond price tracking system and will shortly operate a bond exchange. The salient features would be as follows.

Fractionalisation BondEvalue would allow conversion of an existing bond in the secondary market equivalent to US$200k into smaller denominated fractional bonds called BondbloX of denominations of US$1,000

Electronic and Transparent  BondbloX allows trades through exchange. This ensures that the trade is totally transparent for all the stakeholders. 

Visit https://www.bondblox.com/ to know more about trading bonds.




Wednesday, 15 July 2020

PTT Launches $ Bond; BBVA Issues First EUR Green CoCo; Braskem Downgraded to Junk - BondEvalue


Markets climbed late in the overnight session with Nasdaq hitting a fresh high. Despite a lack of fresh data, recovery hopes are still outweighing coronavirus concerns. Apple and Microsoft stocks led the tech sector gains. European shares declined and long dated treasuries slipped slightly. Spreads on Asian dollar bonds tightened to their lowest in nearly four months and deal momentum remained strong.
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New Bond Issues

             Shandong Energy Group $ 3yr @ 4.5% area
             Yankuang Group $ 3yr @ 4.75% area
             PTT $ 50yr @ 4.15% area
             Hangzhou Fin. & Inv. $ 5yr @ 3.7% area
             ZhongAn Online P&C Insurance $ 5yr @ T+330bp area
ABC International Holdings, the investment banking arm of Agricultural Bank of China, raised $450mn via 3Y bonds at a yield of 1.59%, 140bp over Treasuries and 40bp initial guidance of T+180bp area. The bond, expected to be rated A2, will be issued by wholly owned subsidiary Inventive Global Investments and guaranteed by the parent company.
Studio City Finance, the funding vehicle for Macau casino operator Studio City raised $1bn via a two-tranche offering. It raised $500mn via 5Y non-call 2Y (5NC2) bonds at a yield of 6%, 25bp inside initial guidance of 6.25% area. It also raised $500m via 7.5Y non-call 3Y (7.5NC3) bonds at a yield of 6.5%, 25bp inside initial guidance of 6.75% area. Part of the proceeds will be used to fund the redemption of its $850m 7.25% secured bonds due 2021. Studio City said it would also raise up to $500m from a share placement underwritten by ultimate parent Melco Resorts and Entertainment.
Hong Kong-listed Chinese real estate company Kaisa Group Holdings raised a total of $700mn via a dual-tranche bond issue. It raised $400mn via 3.2Y non-call 2.2Y (3.2NC2.2) bonds at a yield of 10%, 37.5bp inside initial guidance of 10.375% area. It also raised $300mn via 4.75Y non-call 2.75Y (4.75NC2.75) bonds at a yield of 11.5%, 25bp inside initial guidance of 11.75% area. The bonds received final order exceeding a total of $3.6bn, 5.14x issue size.
Overseas Chinese Town Enterprises raised $500mn via a Perpetual NC3 bond at a yield of 4.5%, 45bp inside initial price guidance of 4.95% area. If the bond is not called on the first call date of July 15, 2023, the bond coupon will reset to the prevailing 3Y Treasury yield plus a spread of 831.2bp. The bond will be issued by Hong Kong-listed unit Overseas Chinese Town (Asia) Holdings and guaranteed by the parent company.
Chinese property developer Yango Group raised $300mn via 3.75Y non-call non-put 2.25Y (3.75NPNC2.25Y) bond at a yield-to-put of 7.85%, 50bp inside initial guidance of 8.35% area. The bond, with an expected rating of B2, received final orders exceeding $2bn, 6.67x issue size.

Fed Winds Down Repo Market Operations After 10 Months

The Fed’s unprecedented intervention in the short-term has been wound down after the central bank successfully tamed volatile funding costs that threatened the financial system.The Repo market is where investors swap high quality collateral like US treasuries for cash. The Fed stepped in last September when a cash crunch sent overnight borrowing costs skyrocketing and then scaled up when the coronavirus disrupted markets. These repo activities have been dwarfed more recently by the other measures such as resumption of large scale QE and facilities for corporate bond markets. “The fact that the Fed is willing to slowly and incrementally pull back indicates both that funding markets have normalised substantially since March and that in the long run the Fed wants to not have a larger footprint than they need to,” said Jon Hill, an interest rates strategist at BMO Capital Markets.

BBVA Raises €1 Billion via First Ever Green CoCo

Spanish lender BBVA raised €1bn via the world’s first ever green contingent convertible coco bond by a financial institution. While green bonds (Term of the day, explained below) have been around for over a decade now, a green bond that is also a contingent convertible or additional tier 1 (AT1) bond is a new structure. The bonds received orders worth €2.75bn with the UK accounting for 50% of the investors followed by France with 22%. Strong investor demand allowed the bank to tighten final pricing to 6%, 50bp inside initial guidance of 6.5%. As per the BBVA press release, the new green CoCos are expected to be rated Ba2 and BB from Moody’s and Fitch respectively. The bonds will pay quarterly coupons and have their first call date on January 15, 2026, after which the coupon will be reset to the prevailing 5Y Euro Swap Index (EUSA5) plus a spread of 645.6bp. The funds will be allocated to eligible green assets in BBVA’s portfolio. This portfolio totals €2.6 billion, around 70 percent of which originated between 2018 and 2020. The portfolio consists of diversified assets from different green sectors: energy efficiency, renewable energy, sustainable transportation, waste management and water management.
BBVA last issued a Euro CoCo in March last year. The old €1b 6% perpetual bonds are callable bond in March 2024 and carry a coupon reset of the prevailing 5Y Euro Swap Index (EUSA5) plus a spread of 603.9bp. The bonds are currently trading at 99.43 cents on the Euro, yielding 5.87% on the secondary market.

Brazil’s Braskem Downgraded to BB+, Joins The List of Fallen Angels

S&P downgraded Braskem, a Brazilian petrochemical company, into junk territory with a rating of BB+ from BBB- with a stable outlook on the back of lower demand and high leverage. Earlier on July 2, Fitch had also downgraded the company to BB+ with a stable outlook. The downgrades have led Braskem to join the list of Fallen Angels, a title given to bonds that lose their investment grade rating by two of the three major rating agencies. The cash flows of the company have been under stress for a while. The overall demand for chemical products has fallen, especially since the pandemic broke out. The company’s cracker utilization dropped to 70-75% and volumes are expected to fall by 5-10% this year, according to S&P. S&P forecasts the company’s leverage to be high with a net debt to EBITDA ratio in the region of 3.5x – 4.5x in 2020 and in the region of 3.0x-4.0x in 2021 compared to the previous 3.0-3.5x. Braskem’s dollar bonds were largely unchanged on the secondary markets.

Green Bonds

Green bonds are bonds whose proceeds are used towards financing projects that have a positive environmental impact such as renewable energy. The first green bond was issued by the European Investment Bank in 2007. Since then, the bond markets have seen green bond issues from supranationals such as The World Bank, sovereigns and corporates.

Talking Heads

On Softening US Data and Further Stimulus – Raphael Bostic, Federal Reserve Bank of Atlanta President

“The Fed definitely needs to think about whether more is necessary and really understand the nature and causes of the shortfalls,” Bostic told reporters Wednesday. “Officials throughout the Federal Reserve system have been pretty clear that even if there is weakness, it is not always obvious that the Fed is the right body to be doing the response.” Bostic said he is particularly concerned that U.S. small businesses, especially “the smallest of the small” firms, are being left out of relief efforts because they lack banking relationships that sped up funding as part of past relief measures.

As for yield curve control, Bostic said, “Before leaning in too much to that I want to have us all be clear on what we are trying to accomplish.” It would also be important that, if such a move were taken, the central bank could “facilitate an orderly and straightforward exit,” he told reporters. “The energy in terms of reopening for businesses and for just general activity is starting to level off,” he said. “This is something we are definitely going to watch extremely closely.”

On Argentina’s Latest Restructuring Proposal – Martin Guzman, Economy Minister of Argentina
“Negotiations were performed until the moment in which we launched the offer. Now there is an offer, and creditors will decide on that offer. As of today, all alternatives are possible within the constraints that we have defined but the final decision is going to be made once we have more clarity on the process, on the acceptance from creditors,” Guzman said when questioned about a partial exchange. Referring to minimum participation levels, he added, “the offer is designed to, first, make sure that every creditor that decides to accept the offer is on the good side of liquidity, so it’s designed in a way that protects creditors that accept.”

Argentina will seek a new program with the IMF as soon as it wraps up talks with private creditors, he added, noting that “we need to borrow from the IMF to pay the IMF. Argentina has very tight constraints today– it doesn’t have any capacity to pay anything today,” Guzman said. “The state will have to play a role through productive policies and through active management of aggregate demand and credit policies in order to create incentive for job creation,” Guzman added.
On Argentina’s Creditors Opinion on Debt Restructuring

Argentina Creditor Groups, which combined hold around $21 billion of the eligible debt
“While we do not accept Argentina’s latest proposal, encouragingly it does provide a basis for constructive engagement,” the groups said. This comes after the Economy Minister Martin Guzman said that the latest proposal was the most the country could offer and there was “clearly not” any room for amending it further ahead of an Aug. 4 deadline for a deal.
Siobhan Morden, from Amherst Pierpoint

“If they do remain united and reject the offer then it’s hard to see how this deal goes forward,” said Siobhan, referring to the two groups. “Without their 35% share then Argentina would not cure the default. The rejection of the offer may discourage bondholder participation and this last launch could fail.”

On France Selling an Inflation-Linked Bond – Anthony Requin, chief executive officer at France’s debt management agency

In the primary market, France raised 3 billion euros from an inflation-linked bond due 2036 via a syndicate of banks, receiving over 16 billion euros of demand. Anthony Requin said that he had been surprised by the amount of interest. “We have found the guys we see in our nominal auctions showing up in this (order) book as well,” he said. Asked to explain the demand, Requin said: “How inflation could evolve in 10-20 years’ time remains a very open question … I think it’s fair to say that if you are an asset manager that tends to diversify its holdings, it’s not a bad idea to put a few euros inside this bucket.”

On Israel Central Bank’s Decision to Buy Corporate Bonds – Andrew Abir, Deputy Governor
The Bank of Israel’s decision to start buying corporate bonds should enable companies to issue debt and prevent further layoffs because of the coronavirus pandemic, deputy governor Andrew Abir said. “It’s not that the corporate bond market was not functioning or because spreads have widened dramatically, but rather the understanding that over the next 6-12 months, there’s going to be a need for issuance in that market,” Abir told Reuters.

“We want to prevent a situation where a company is having question marks in its ability to fund themselves (and) lays off another 1,000 workers. We still have more measures that we can do. QE can be increased. We haven’t run out of our policy options,” Abir said.

Monday, 29 June 2020

Sino-Ocean Cap, Agile, Ronshine Launch $ Bonds; Hilong Defaults; Lufthansa Deal Hits Roadblock


Sino-Ocean Cap, Agile, Ronshine Launch $ Bonds; Hilong Defaults; Lufthansa Deal Hits Roadblock
US Benchmark & Global Indices 23 Jun
Markets started this week on a positive tone as investors look towards recovery as we get closer to quarter end. Economic growth and data this quarter have been some of the worst but markets have seen a record return primarily driven by central bank stimulus’ globally. Investors are still looking at the new coronavirus outbreaks in the US, Brazil, Germany, Australia, Beijing and are undecided whether this is a second wave or a continuation of the first wave. Either way, the concerns are taking a backseat as doubts over whether further economic lockdowns would be imposed. White House economic advisor Larry Kudlow calmed investors who got nervous after Apple’s decision to temporarily close stores by playing down the chances of new economic lockdowns. Primary bond market continue to see solid activity as issuers take advantage of the positive sentiment, low treasury yields and low credit spreads and raise money to prepare for their worst case scenario. Asian markets are opening higher, supported by a similar start to the week by Wall Street. Markets could be volatile towards the end of the quarter with investors keeping an eye on both economic and coronavirus data.
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New Bond Issues

             Sino-Ocean Capital $ 364-day @ 6.125% area
             Agile Group $ 4.5NC2.5 @ 6.125% area
             Ronshine China Holdings $ tap 2023 @ 7.3% area
             China South City $ 125 mio tap 10.875% 2022
             Sichuan Languang $ tap 11% 2022 @ 11% area
New Bond Issues 23 Jun
Indonesia’s Perusahaan Listrik Negara (PLN) has raised $1.5bn from a dual-tranche deal. It raised $500mn via a 10Y bond at a yield of 3.1% and $1bn via a 30Y bond to yield 4.1%. Both bonds were priced 70bps inside initial guidance of 3.8% area and 4.8% area respectively. The bonds, expected to be rated Baa2/BBB/BBB, received final orders exceeding $4.35bn, almost 3x issue size. The new bonds were priced tighter compared to its 5.375% bonds due Jan 2029, currently yielding 3.32% and its 4.375% bonds due Feb 2050, currently yielding 4.21%.
CLP Power HK, raised $1bn via a dual-tranche deal on Monday. It raised $750mn via a 10Y bond at a yield of 2.281%, 160bp over Treasuries and $250mn via a 15Y bond at a yield of 2.581%, 190bp over Treasuries. The bonds were priced 50bp and 0-5bp inside initial/final guidance of T+210bp area and 190bp–195bp respectively. The 15Y tranche was added at the time of final guidance for the 10Y. The bonds are expected to be rated A+/A1.
Fosun International raised $600mn via 4Y non-call 3Y (4NC3) bonds at a yield of 6.85%, 50bp inside initial guidance of 7.35% area. The bond, expected to be rated BB, received final orders exceeding $2bn, 3.33x issue size. Fosun plans to use the proceeds to fund its tender offer on 4 of its outstanding bonds as per the table below:
Fosun Intl Repurchase Table
Thailand’s Minor International raised $300mn via perpetual NC3 bonds at a yield of 3.1%. The bonds were priced 70bps inside initial guidance of 3.8%. The bonds, expected to be rated Baa2/BBB, received final orders exceeding $2.3bn, 7.67x issue size. Minor last issued a perpetual in Nov 2018, when it raised $300mn at a yield of 4.661% at the time of issuance. The bonds are currently trading at a yield of 3.03% on the secondary markets.

Rating Changes

Fitch Downgrades BBVA to ‘BBB+’; Outlook Stable
Fitch Revises Outlook on 9 Indian Banks’ IDRs to Negative; Affirms IDRs
Fitch Revises Indian GREs’ and HPCL’s Outlook to Negative; Affirms IDRs at ‘BBB-‘
Fitch Revises Outlook on Three India-Based Infrastructure Financing Companies; Ratings Affirmed
Fitch Revises Outlook on Adani Transmission’s Foreign-Currency IDR to Negative; Affirms Ratings
Fitch Revises Outlook on Bharti Airtel to Negative; Affirms at ‘BBB-‘
Fitch Revises Outlook on Namibia to Negative; Affirms at ‘BB’
Moody’s assigns Ba3 rating to American Airlines’ new senior secured term loan and senior secured notes
Moody’s assigns a Ba2 rating to DP World’s proposed hybrid instruments
Fitch Rates Bank of China Hong Kong Branch’s MTN Notes Final ‘A’

Hilong Defaults on Dollar Bond After Failed Exchange Offer

Chinese oil equipment and services company Hilong Holdings Ltd defaulted on its $165mn 7.25% bonds due Monday after it failed to complete an exchange offer on its bonds in time. According to an exchange filing, this has triggred a cross default on its $200mn 8.25% bonds due 2022. The company has extended the deadline for its exchange offer to June 29 with hopes of receiving approval from the required 80% of bondholders by then to “cure the payment default”. The filing stated that bondholders have tendered 63.45% of total outstanding principal, short of the required 80%. Hilong was downgraded by Moody’s and Fitch on June 9 to B3 (from B2) and CC (from B) on the back of heightened refinancing risks. According to Bloomberg, Hilong’s failure to pay has brought the total value of offshore bond defaults from China to $4bn this year. Its 8.25% bonds due 2022 are currently trading at 36.75 cents on the dollar.

MNC Investama Plans to Buyback Dollar Bonds

Indonesian conglomerate MNC Investama is planning to buyback its $231mn 9% bonds due in May 2021. Its founder, Hary Tanoesoedibjo said in an interview on Monday that it will hold talks with bondholders and plans to complete the partial buyback by October this year. He added, “With the pandemic happening, the prices of so many dollar bonds are falling. We have not officially proposed anything to our bondholders, but maybe we can buy back the bonds at an agreed price. Maybe not all because it’s almost impossible to buy back 100%”. The 9% bonds due 2021 are currently trading at 77 cents on the dollar on the secondary markets. MNC Investama has a connection to the US President in that it is the developer of Trump-branded luxury resorts in Indonesia.
As pointed out by Daniel Stanton, the editor for Asian Credit at IFR, in his op-ed piece on LinkedIn, this is a welcome surprise for bond investors of Indonesian credit. MNC is planning to hold talks with bondholders almost a year before its bonds are due to mature, indicating its efforts at avoiding a default. This is a far cry from Indonesia’s Asia Pulp and Paper default on $12bn of debt in 2001. Another Indonesian developer Lippo Malls recently announced that it will honor all its debt payments this year, offering comfort to its bondholders. This indicates that Indonesian corporates are taking their commitments to international investors seriously as they may need to keep that avenue of funding open amid the pandemic.
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Lufthansa Bonds and Stock Fall as Government and Shareholders Disagree on Bailout

Lufthansa airlines has been in the news for running into liquidity problems after the disruption in flights due to the ongoing pandemic. The airline has more than €3.7bn ($4.2bn) outstanding in instruments including bonds, loans and Schuldschein notes. The stoppage of flights has directly hit its top line, which has put the airline under severe liquidity pressure. On May 26, The Guardian had reported that Lufthansa had reached an agreement with the government for a €9bn ($10.14bn) bailout package in return for a 20% stake in the airline. While this was seen as a lifeline by many, it has not gone down well with some shareholders, especially billionaire Heinz-Hermann Thiele, who owns 15.5% in the beleaguered airline. While the government stands firm with the deal, Thiele is looking to block the deal, which would result in dilution of his share in the airline. The next shareholder meeting would decide the course for the airlines. As per Citibank analysts, there are three possible scenarios that could emerge out of the shareholders meet on Thursday.
             The vote passes with Thiele’s support
             The deal fails and the government withdraws its offer
             Thiele expands his holdings as the share prices fall
With the uncertainty looming over the deal, Lufthansa bonds fell to a three month low on Monday and the shares traded 3.2% lower. The bond prices of the company have seen a steep fall in the month of June. The 0.25% Euro bonds maturing in 2024 traded at their lowest price since March end.
Lufthansa Bonds Witness Volatility Amid Bailout Talks

Yes Bank Set to Default on Coupon Payment on Rupee Tier 2 Bonds

Yes Bank is set to default on its upper Tier II Indian rupee denominated bonds after the RBI declined permission to the bank to make interest payments on the 10.25% upper Tier II bonds due on June 29. In an exchange filing, the bank reported that the central bank had declined the bank’s request as the bank’s capital fell below the minimum requirements. However, the bank informed investors that the accumulated interest would be paid as per the terms of the 2012 Information Memorandum according to which the interest due and remaining unpaid shall be paid by the bank later subject to the bank complying with the relevant regulatory requirements. Earlier, the Indian government had rescued the bank through an RBI drafted revival plan led by State Bank of India, the country’s largest public sector bank. The bank had also announced in March that two series of its AT1 bonds worth ₹8,415 crore (~$1.1bn) would be written off permanently. Yes Bank’s 3.75% dollar bonds due 2023 were largely unchanged on the secondary markets at $91.625.

Reliance Looks to Buy a Stake in Future Retail, Its Bonds Rally

The fight to win the Indian customer intensifies as Reliance seeks to buy a stake in Future Retail. On Jun 19, Asia Nikkei reported that the debt laden Future Group was in talks with Amazon and Reliance among other potential investors to raise between $1bn to $2bn. As per the Economic Times, Reliance was close to finalizing a deal. The news is significant since Amazon already already holds a stake in Future Group and also because Mukesh Ambani’s Reliance Industries is looking at increasing its footprint in the Indian retail sector. Reliance recently secured ~$14bn from various investors including Facebook for its e-commerce venture Jio Platforms and looks to aggressively expand in the e-commerce space. Amazon already holds a 1.3% stake in Future Retail after it purchased 49% of Future Coupons Ltd and it may also be looking at expanding its investment in the group. The holding firm of Future Group has a debt of ~ ₹100bn ($1.3bn) which it is looking to offload through strategic deals. Future Retail’s dollar 5.6% bonds due 2025 have been rallying on the news and are currently trading at 67.645.
Future Retails Dollar Bonds Rise on Talks of a Stake Sale

Sri Lankan Banks Now Allowed to Buy Its Sovereign Dollar Bonds, Leading to a Rally in the Bonds

The Sri Lankan central bank had prohibited the country’s banks from buying its international sovereign bonds (ISBs) for three months starting March 19 on the back of a foreign exchange shortage in the country. The central bank announced last week that the banks can now purchase ISBs, albeit only with new foreign currency inflows to the banks. Sri Lanka‘s sovereign dollar bonds, which have been trading at steep discounts on the secondary markets, have traded up by ~10-15 points over the last month.
Another dollar bond issuer from Sri Lanka, SriLankan Airlines Ltd is in talks to raise $75mn in new debt, restructure $400mn worth of bank debt and reduce staff in a bid to survive amid the ongoing pandemic. The airline’s chairman Ashok Pathirage said, “We started the process of [restructuring] before the crisis. If anything it accelerated it. We have to make hard decisions. The airline does not want to be a burden.” Its $175mn 7% bonds due 2024 are currently trading at 58.5 cents on the dollar, yielding 23.6% on the secondary markets.
Sri Lankan Dollar Bonds Trend Up

BEV Term of the Day

Tier 2 Bonds

Tier 2 bonds are debt instruments issued by banks to meet their regulatory tier 2 capital requirements. Tier 2 capital (and thus tier 2 bonds) rank senior to tier 1 capital, which consists of common equity tier 1 (CET1) and additional tier 1 (AT1) capital. CET1 consists of a bank’s common shareholders’ equity while AT1 consists of preferred shares and hybrid securities or perpetual bonds. Tier 2 capital consists of upper tier 2 and lower tier 2 wherein the former is considered riskier to the latter. We have summarized banks’ liability structure in the table below.
Bank Liability Structure
From a bond investor’s perspective, tier 2 bonds are senior, and therefore less risky, compared to AT1 bonds as AT1s would be the first to absorb losses in the event of a deterioration in bank capital.

Talking Heads

On the UK Government possibly running out of money in March – Andrew Bailey, Bank of England’s governor
Andrew Bailey said that if the BoE had not intervened in March, the UK Government would have run out of money. “I think we would have [had] a situation where, in the worst element, the government would have struggled to fund itself in the short run,” Mr Bailey said. Mr Bailey also said that monetary stimulus “mustn’t become a permanent feature” of the economy. Instead he said he would prefer to reverse some of the £300bn of quantitative easing rather than raise interest rates.
On Hong Kong’s future as the global financial hub – Fan Xinghai, Vice Chairman of the China Securities Regulatory Commission (CSRC)
China is confident of Hong Kong’s future as an international financial center, and they believe there should not be a whiff of pessimism about it. Fang Xinghai told a forum that China should also accelerate yuan internationalization given the massive dollar assets that they hold overseas and the risk of possible restrictions on global payments by Chinese companies. “Such a thing has happened to many Russian companies and financial institutions. So, China has to save for the rainy days,” Fang said.
On EU issuing perpetual bonds during COVID-19 crisis – George Soros, Soros Fund Management
Soros criticizes the fact that the “frugal four” are limiting themselves to past methods and not using fiscal tools such as perpetual bonds (or consols) ideally suited to the current circumstances. “Perpetual bonds are often confused with Corona bonds, which have been rejected by member states because they carried burden sharing too far. But in reality, they work in opposite directions. Corona bonds increase burden, perpetual bonds reduce it.The distinguishing feature of perpetual bonds is that the principal never has to be repaid, only the annual interest is due. They have a cost-benefit ratio that is almost 10 times greater than that of the long-term bonds the EU is proposing. They can be issued as soon as member states authorise sufficient “own resources”, i.e. new taxes that would maintain the triple A rating of the EU. It would hence take several years to raise the money and up to 30 years to repay it and keep expenditures to a minimum.”
On unlikely winners in emerging markets – Dan Shaykevich, Vanguard’s co-head of emerging-market and sovereign debt
“We were adding exposure when we saw some of these names trade at levels that were beyond what we thought were consistent for even some of the more distressed scenarios,” said Dan Shaykevich.

Wednesday, 24 June 2020

BondEvalue Unveils BondbloX – World’s First Blockchain-Based Bond Exchange


             Platform to launch via the Monetary Authority of Singapore’s Sandbox Express
             BondEvalue to make bonds accessible by reducing denominations to US$1,000

Singapore, 4 November 2019 – Singapore based BondEvalue today announced that it has been approved to enter the Monetary Authority of Singapore’s (MAS) Sandbox Express to launch a blockchain-based bond exchange. The platform will offer a unique proposition to reduce the minimum investment amount of bonds to US$1,000 via BondbloX. BondbloX is a fraction of a conventional US$200,000 bond wherein each BondbloX has a denomination of US$1,000.

Currently, bonds are predominantly traded over-the-counter (on the phone), which makes bond prices opaque and the process inefficient. BondEvalue uses a permissioned blockchain that allows bonds to be traded electronically, like stocks. By moving bond trading to an electronic exchange, prices become transparent and trade settlement becomes instantaneous. This is a huge improvement from the traditional process of a two-day trade settlement cycle.

“Today only about 50,000 people in Asia are able to afford wholesale bonds, due to the US$200,000 minimum investment. BondBloX will grow this number to over 25 million in the next 3-5 years,” said Rahul Banerjee, founder of BondEvalue. He added, “The bond market should not be restricted to just the affluent but rather be accessible to all, like equities.”

The platform connects to banks, wealth managers and robo-advisors across the world, allowing their customers (limited to accredited investors in Singapore) to trade BondbloX. The company will showcase the platform at the upcoming Singapore FinTech Festival (SFF) x Singapore Week of Innovation and TeCHnology (SWITCH) 2019.

Mr Sopnendu Mohanty, Chief FinTech Officer, MAS said, “The ability to gather early feedback from actual customers plays an important part in determining the success of innovation. Sandbox Express achieves this by providing a fast lane approval for innovations to be tested quickly in the market. We are delighted that it has enabled BondEvalue to jumpstart an innovative experiment to address real challenges in today’s bond market.”

BondEvalue’s bond exchange is built on Hyperledger Sawtooth – a modular platform for building, deploying and running distributed ledgers.

“Hyperledger is excited to see BondEvalue’s bond exchange platform, based on Hyperledger Sawtooth, going live. BondEvalue will be able to provide greater financial inclusion through
enhanced transparency, security and efficiency that Hyperledger Sawtooth’s permissioned blockchain provides. It is a great example of how permissioned blockchain can disrupt traditional markets and offer new, interesting business models and opportunities.” said Mr. Brian Behlendorf, Executive Director, Hyperledger.

“As a blockchain bond exchange that connects with financial institutions, we are delighted to join the Hyperledger community and leverage its powerful permissioned blockchain technology,” said Rajaram Kannan, Co-founder and CTO at BondEvalue. “Our Hyperledger-Sawtooth based system is able to match and settle trades within a few seconds that otherewise take 2-3 days.“

Jonathan Horan, Capital Markets Partner, Singapore, Linklaters added, “We are delighted to have had the opportunity to work with BondEvalue and MAS, on the FinTech regulatory sandbox process and BondEvalue’s digital platform. Entry into Sandbox Express marks a significant step in real-life blockchain implementation to redefine international debt capital markets while being fully compliant with extant laws.” Linklaters is the legal advisor to BondEvalue.