August 6, 2014 / 9:42 AM / in 3 years

ASIA CREDIT CLOSE: Asian credits widen on Ukraine-related fears

SINGAPORE, Aug 6 (IFR) - Asian financial markets retreated today on heightened political tension amid reports that Russia was stationing more troops at its border with Ukraine.

Stocks were in the red this morning across the region. The Nikkei closed more than 1% down and the Hang Seng Index ended 0.4% lower. Credit spreads pushed out in tandem as the iTraxx Asia IG index widened about 1bp to 107bp/109bp.

“Liquidity has been pretty bad overall today, with bid/offer spreads in cash bonds very wide,” said a Singapore-based trader.

Cash bonds in the investment-grade segment widened 3bp, but the focus today was on the two new bonds, which Export-Import Bank of Korea and China Merchant Bank issued yesterday.

The fresh issues were not spared. Kexim’s new 2019s gapped out 7bp to 79bp from a reoffer spread of 72.5bp over US Treasuries, while the 2026s widened 5bp to 90bp from the reoffer spread of 85bp.

“At current levels, the bonds look more reasonably priced as they were priced too tightly,” said another Singapore-based trader. “The bonds were well supported by Korean investors. The US investors are worried about rate hikes, but Korean investors are worried about domestic rate cuts. Overall, the Koreans will support the bonds.”

The weak market sentiment also hit China Merchants Bank’s debut bond, which priced yesterday at 162.5bp and widened about 4bp-6bp through the day.

Huarong 2019s have widened over the past week to 232bp/228bp, almost back to the reoffer spread of 235bp. Just a week ago, the bonds were inside the reoffer at 223bp/220bp. MANDATE China Construction Bank (Asia) has hired three banks to arrange a series of meetings with fixed-income investors for a potential offering of US dollar Reg S Tier 2 capital instruments.

CCB International, Citigroup and HSBC have been named joint global co-ordinators for the offering, which could be first USD T2 issue from a Chinese bank this year. The meetings will begin tomorrow in Hong Kong and Singapore.

CCB Asia has ratings of A2 from Moody’s and A from Fitch.

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