2012 has not been a watershed year for high-yield primary issuance. On the face of it, investors are searching for yield, as rates hover around all-time lows, which theoretically ought to lead to demand. This has proven true in the secondary markets, with high-yield bonds posting strong gains since the start of the year.
However, the high-yield primary market is full of false starts and, at present, is clearly open only to select names, as reflected by the fate of China Hongqiao and Xac Bank this week.
The leads for China Hongqiao — Barclays, Credit Suisse and J.P. Morgan — went out with whispers for the five-year bond at high 11% but failed to price. The bonds were callable after the third year.
This is not the first time the Chinese aluminium maker has pulled a bond, so it does seem to face issues that are specific to its credit. However, the conditions also played a role.
“The markets are weaker this week,” said a source.” We have seen names like Fantasia trade lower. It’s a long weekend coming up, so we decided it might be better to hold off on China Hongqiao and maybe consider coming back later after the golden week in China.”
“In risk-averse markets, investors turn to investment-grade names,” another source added.
Mongolia’s Xac Bank, which had held roadshows, was said to have come out with initial whispers in the double-digit area. However, no formal terms were released and no deal materialised. ANZ and Citi were the arrangers.
Again, this isn’t the first time. Back in March, Xac Bank had met with investors but similarly failed to cross the line. The bank is rated B1 by Moody’s and B by Fitch.
Meanwhile, China South City, which develops and operates logistics and trade centres in China, has also concluded roadshows with plans to tap the market with a five-year bond that is callable after the third year, but the deal seems to have gone quiet. UBS is the sole global coordinator and bookrunner. Bank of America Merrill Lynch and HSBC are also bookrunners.
