New bond issuance – especially higher beta names – could struggle to price competitively in the coming days. The ongoing US debt ceiling debacle could prompt credit investors to demand higher premiums, which are hovering around the 5bp-10bp level, according to experts.
“At the moment, premiums are relatively negligible but, as you move to the end of this week, that may increase a little bit,” said a Hong Kong-based debt syndicate banker to FinanceAsia. “High beta credits are going to have to pay a bit more.”
There were signs of stepped-up efforts in the US on Monday to resolve the fiscal crisis, with President Barack Obama saying he would accept a short-term increase in the country’s borrowing authority in order to avoid a crisis.
But seven days into a government shutdown and only 10 days from a critical deadline to raise the US debt ceiling, nothing amounting to a breakthrough was in sight.
As the October 17 deadline draws nearer, bankers warn that market sentiment could take a toll on Asian bond markets if a resolution has not been made.
“There is a growing nervousness that continues,” said a Hong Kong-based head of DCM. “I think as we approach the end of this week and the early part of next week, if we still haven’t seen any type of agreement, investors will be expecting to price a pretty generous premium as that uncertainty approaches to the extent that we might see the primary market pause for a little bit.”
Nonetheless, syndicate bankers are confident that high-quality Asian credits will still be able to find a good window in which to issue due to the scarcity of these credits in the region and will find the impact of the US debt ceiling immaterial.
For example, Kookmin Bank successfully raised a $500 million floating rate note yesterday and priced competitively within its existing curve at 125bp above the three-month US dollar Libor curve.
The bond is trading tighter in secondary markets at 115bp today, buoyed by strong appetite for rare floating rate notes, according to a source.
“There will be a bid for higher new issue premium for your standard product unless you do something smart like a floating rate now, where you price inside the curve,” said a source close to the Kookmin deal.
Only one deal has been announced today. China Properties Group is marketing a five-year high-yield dollar bond that has a callable option in the third year. The deal has an initial price guidance in the high 13% area.
Bank of America Merrill Lynch is the sole bookrunner for the B- rated bond.
