INFRATIL is assessing whether the company or its portfolio of entities require refinancing or debt extensions because of the coronavirus pandemic, according to filings to the New Zealand and Australia stock exchanges last Wednesday.
The infrastructure investment company has a NZ$53m (US$32m) bank facility expiring this July, NZ$93.9m of IFT220 bonds maturing in June 2021, and NZ$93.7m of IFT190 bonds due in June 2022.
The wholly owned group executed a number of bank refinancings in the past three months, boosting its total bank facilities by NZ$75m to NZ$748m.As of March 31, the group had NZ$480m of drawn debt and NZ$268m of undrawn bank facilities.Infratil has major stakes in TRUSTPOWER(51%), WELLINGTON INTERNATIONAL AIRPORT (66%), RETIREAUSTRALIA (50%), CANBERRA DATA CENTRES(48.2%), TILT RENEWABLES (65%), LONGROAD ENERGY (40%) and VODAFONE NEW ZEALAND(49.9%), according to its website.
New Zealand utility generator retailer TrustPower, which has NZ$135m of bank facility headroom, is looking to extend debt of NZ$25m and NZ$55m that come due in July and October, respectively.Meanwhile discussions are progressing with lenders and shareholders about the funding required to enable Wellington Airport to maintain operations, undertake necessary investment, and repay approaching financing maturities.RetireAustralia is working with its banking group to repurpose existing facilities for working capital requirements after having completed a refinancing in the second quarter of 2019.
New Zealand Superannuation Fund owns the remaining stake in RetireAustralia, the owner, developer and operator of retirement villages.Tilt Renewables announced on Wednesday a capital return of approximately A$260m (Infratil’s share is A$169m) by way of a court approved scheme of arrangement which is expected to be completed in the first half of FY2021. Tilt will retain a significant cash position and has a strong balance sheet to support its medium term development pipeline. It is the owner of renewable energy generation assets in Australia and New Zealand.The impact of Covid-19 on Longroad Energy’s future development activity is unclear.
It is reasonable to expect a slowdown and pipeline development will in part depend on the rate of recovery in corporates and utilities signing new power purchase agreements, as well as liquidity in the bank and tax equity markets. New Zealand Superannuation Fund owns 40% stake in Longroad Energy, which is a renewable energy developer headquartered in Boston in the US.Infratil’s other portfolio entities Canberra Data Centres and Vodafone New Zealand have no near-term maturities.
Rabu, 15 April 2020
Downgrades pile up for CAR Inc
Rating agencies last week slashed CAR INC’s credit ratings, citing the impact of an accounting scandal at LUCKIN COFFEE on its access to capital markets and operations.Moody’s on April 6 cut the Chinese car rental company and its bonds to B2 from B1, before downgrading its rating again to Caa1 on Thursday, with a negative outlook. S&P on Tuesday lowered CAR and its outstanding US dollar bonds to B– from B+.
It also placed the ratings on negative watch.CAR and coffee chain Luckin are separate companies but the market sees them as related because both are controlled by Chinese billionaire Lu Zhengyao, who founded CAR and chairs Luckin. CAR’s shares and bonds slumped on the Luckin news.S&P said CAR’s access to capital markets has been reduced dramatically following significant declines in its share and bond prices.
Moreover, the company’s relationship with banks may be tested, while its capacity to sell used cars is subject to market demand. It pointed out that CAR also risks triggering a change-of-control clause on its outstanding dollar notes should UCAR, also controlled by Lu Zhengyao, lose control of 505m CAR shares pledged as collateral for bank loans. The pledged shares equal around a 24% stake in CAR and served as collateral for Rmb1.4bn (US$200m) of bank loans as of June 2019, according to S&P.
The change-of-control clause could be triggered if the combined holding of UCAR and Legend Holdings Corp (26.59%) drops to below 35% from the current 56.35%, according to S&P.CAR on April 9 said UCAR sold a 2.11% stake in the company on April 3 at the request of certain lenders and is “in ongoing discussions with various parties in relation to its remaining shareholding in the company”.
Following the disposal, which took place under the terms of an underlying financing agreement, UCAR still holds 27.65% of the total issued share capital of CAR.DEFAULT RISKSMoody’s said its downgrade to Caa1 reflected the breadth and severity of the shock on CAR, and the broad deterioration in credit quality and shifts in market sentiment it has triggered.
It said the challenges facing CAR’s substantial shareholder, UCAR, along with the misconduct at Luckin, are elevating the company’s risks in terms of funding access, change of control and default. CAR’s debt maturities over the 12 months ending March 31 2021 total about Rmb5bn–Rmb6bn, including Rmb1.0bn Panda bonds puttable in April 2020 and US$300m notes due in February 2021, according to S&P.US-listed Luckin on April 2 said it had suspended chief operating officer Jian Liu and employees reporting to him after an internal investigation found that he may have fabricated sales totalling about Rmb2.2bn from the second quarter of 2019 to the fourth. Liu held positions at CAR before he joined Luckin.CAR’s shares were suspended from trading on April 3 after they plunged as much as 72% in morning trading, while the cash price of its two outstanding dollar bonds fell more than 25 points.
The shares resumed trading on April 7 and jumped 34% to close at HK$2.63 after CAR stressed in a stock exchange filing that it does not hold any Luckin shares or engage in any business with the company. It also said its financial statements were in “full compliance” and that its relationships with financial institutions and its operations remained normal. But the shares slumped again on April 9 after news of UCAR’s disposal. They closed down 7.8% to HK$2.01. CAR’s 6.00% 2021s were unchanged at 49.00/49.50 and its 8.875% 2022s at 35.00/36.50 on April 9 afternoon, according to Refinitiv data
It also placed the ratings on negative watch.CAR and coffee chain Luckin are separate companies but the market sees them as related because both are controlled by Chinese billionaire Lu Zhengyao, who founded CAR and chairs Luckin. CAR’s shares and bonds slumped on the Luckin news.S&P said CAR’s access to capital markets has been reduced dramatically following significant declines in its share and bond prices.
Moreover, the company’s relationship with banks may be tested, while its capacity to sell used cars is subject to market demand. It pointed out that CAR also risks triggering a change-of-control clause on its outstanding dollar notes should UCAR, also controlled by Lu Zhengyao, lose control of 505m CAR shares pledged as collateral for bank loans. The pledged shares equal around a 24% stake in CAR and served as collateral for Rmb1.4bn (US$200m) of bank loans as of June 2019, according to S&P.
The change-of-control clause could be triggered if the combined holding of UCAR and Legend Holdings Corp (26.59%) drops to below 35% from the current 56.35%, according to S&P.CAR on April 9 said UCAR sold a 2.11% stake in the company on April 3 at the request of certain lenders and is “in ongoing discussions with various parties in relation to its remaining shareholding in the company”.
Following the disposal, which took place under the terms of an underlying financing agreement, UCAR still holds 27.65% of the total issued share capital of CAR.DEFAULT RISKSMoody’s said its downgrade to Caa1 reflected the breadth and severity of the shock on CAR, and the broad deterioration in credit quality and shifts in market sentiment it has triggered.
It said the challenges facing CAR’s substantial shareholder, UCAR, along with the misconduct at Luckin, are elevating the company’s risks in terms of funding access, change of control and default. CAR’s debt maturities over the 12 months ending March 31 2021 total about Rmb5bn–Rmb6bn, including Rmb1.0bn Panda bonds puttable in April 2020 and US$300m notes due in February 2021, according to S&P.US-listed Luckin on April 2 said it had suspended chief operating officer Jian Liu and employees reporting to him after an internal investigation found that he may have fabricated sales totalling about Rmb2.2bn from the second quarter of 2019 to the fourth. Liu held positions at CAR before he joined Luckin.CAR’s shares were suspended from trading on April 3 after they plunged as much as 72% in morning trading, while the cash price of its two outstanding dollar bonds fell more than 25 points.
The shares resumed trading on April 7 and jumped 34% to close at HK$2.63 after CAR stressed in a stock exchange filing that it does not hold any Luckin shares or engage in any business with the company. It also said its financial statements were in “full compliance” and that its relationships with financial institutions and its operations remained normal. But the shares slumped again on April 9 after news of UCAR’s disposal. They closed down 7.8% to HK$2.01. CAR’s 6.00% 2021s were unchanged at 49.00/49.50 and its 8.875% 2022s at 35.00/36.50 on April 9 afternoon, according to Refinitiv data
Bank of Jinzhou discloses recap details
BANK OF JINZHOU has disclosed more details of a recapitalisation plan led by China’s central bank, which will see it sell assets at a deep discount to book value while receiving steady long-term income from state-backed debt instruments.
Beijing Chengfang Huida Enterprise Management, ultimately controlled by the People’s Bank of China, has agreed to buy certain of the Liaoning-based lender’s credit assets and other assets with an original book value of Rmb150bn (US$21bn) for Rmb45bn, under a framework disposal agreement.
The unaudited net loss attributable to the disposed assets for the financial years of 2018 and 2019 was approximately Rmb6.143bn and Rmb8.078bn, according to a stock exchange filing on April 3.Alongside that, Bank of Jinzhou will subscribe for free to 2.25% 15-year debt instruments with a face value of Rmb75bn issued by a partnership controlled by Liaoning Financial Holding Group, which is wholly owned by Liaoning province’s finance department. The bank is expected to receive principal repayment and interest of not less than Rmb5bn per year.
The asset disposal and debt subscription are part of a plan whose main pillar is a private share placement. The three-part plan was announced last month, but only the full details of the share placement had previously been disclosed.The overall rescue plan is still subject to shareholder and regulator approval.In a March 10 filing, the city commercial bank said Chengfang Huida and Liaoning Financial had agreed to subscribe to 6.2bn domestic shares at Rmb1.95 each for a total Rmb12.09bn.
This will leave the pair with a combined 44.34% stake in the bank, not taking into account the potential conversion of offshore preference shares.It is estimated that the overall financial effect of the asset disposal and the debt instrument subscription will incur an unaudited impairment reserve expense of Rmb30bn. However, Bank of Jinzhou said its capital adequacy ratio and asset quality will be greatly improved, making the framework disposal agreement “fair and reasonable and in the interests of the bank and the shareholders as a whole”.
Citigroup in a note said that the de-risking initiatives will greatly reduce Bank of Jinzhou’s risk-weighted assets and are likely to improve its capital ratios. However, while it is credit positive for the bank, Citigroup still view that the resumption of coupon payments on the bank’s US$1.496bn 5.5% offshore AT1s is unlikely in the near-term.
Beijing Chengfang Huida Enterprise Management, ultimately controlled by the People’s Bank of China, has agreed to buy certain of the Liaoning-based lender’s credit assets and other assets with an original book value of Rmb150bn (US$21bn) for Rmb45bn, under a framework disposal agreement.
The unaudited net loss attributable to the disposed assets for the financial years of 2018 and 2019 was approximately Rmb6.143bn and Rmb8.078bn, according to a stock exchange filing on April 3.Alongside that, Bank of Jinzhou will subscribe for free to 2.25% 15-year debt instruments with a face value of Rmb75bn issued by a partnership controlled by Liaoning Financial Holding Group, which is wholly owned by Liaoning province’s finance department. The bank is expected to receive principal repayment and interest of not less than Rmb5bn per year.
The asset disposal and debt subscription are part of a plan whose main pillar is a private share placement. The three-part plan was announced last month, but only the full details of the share placement had previously been disclosed.The overall rescue plan is still subject to shareholder and regulator approval.In a March 10 filing, the city commercial bank said Chengfang Huida and Liaoning Financial had agreed to subscribe to 6.2bn domestic shares at Rmb1.95 each for a total Rmb12.09bn.
This will leave the pair with a combined 44.34% stake in the bank, not taking into account the potential conversion of offshore preference shares.It is estimated that the overall financial effect of the asset disposal and the debt instrument subscription will incur an unaudited impairment reserve expense of Rmb30bn. However, Bank of Jinzhou said its capital adequacy ratio and asset quality will be greatly improved, making the framework disposal agreement “fair and reasonable and in the interests of the bank and the shareholders as a whole”.
Citigroup in a note said that the de-risking initiatives will greatly reduce Bank of Jinzhou’s risk-weighted assets and are likely to improve its capital ratios. However, while it is credit positive for the bank, Citigroup still view that the resumption of coupon payments on the bank’s US$1.496bn 5.5% offshore AT1s is unlikely in the near-term.
Qube weighs increasing borrowing
Import and export logistics company QUBE HOLDINGS is pursuing initiatives to enhance its liquidity, including increasing its bank facilities and monetising its property assets, according to its filing to the Australian Securities Exchange last Monday.
The company will have cash and available undrawn debt facilities of over A$450m after the payment of the interim dividend on April 7.Qube has no debt maturing in the short term and has material headroom to its covenants.It is in the process of determining if it can realise some of the substantial value at Moorebank Logistics Park and to reduce its future funding requirements given the sizable capital expenditure it would likely need.
A group of prospective parties has expressed interest to participate in the next stage of monetisation or partnering process for Moorebank Logistics Park and certain other property assets, but this is likely to take longer than previously anticipated in light of the current environment, according to the filing.In 2017, Clean Energy Finance Corp provided a A$150m seven-year bilateral term loan to Qube to back the construction of the Moorebank Logistics Park.
The development was to switch 1.55m freight containers at Port Botany from road to rail, slashing more than 110,000 tonnes of carbon dioxide equivalent a year of transport-related emissions.The park includes up to 850,000 square metres of warehousing, an import-export rail terminal connected to the container terminals at Port Botany and an interstate terminal.In 2016, a consortium including Qube Logistics Holdings raised A$1.05bn loan to back its acquisition of Asciano Ltd’s ports business. ANZ, Citigroup, Commonwealth Bank of Australia, National Australia Bank and Sumitomo Mitsui Banking Corp were the mandated lead arrangers and bookrunners.
The loan is split into a A$500m three-year term loan tranche A, a A$500m five-year term loan tranche B and a A$50m three-year revolving credit facility tranche C. The margin on tranches A and C is 160bp over BBSY, while tranche B pays 180bp over BBSY based on the credit profile of the underlying assets. The borrowing entity is Patrick P&L Bidco. Qube’s business comprises three divisions – ports, bulk and logistics, infrastructure and property, and strategic assets. It also holds a 50% interest in Patrick Terminals, Australia’s leading container terminal operator.
The company will have cash and available undrawn debt facilities of over A$450m after the payment of the interim dividend on April 7.Qube has no debt maturing in the short term and has material headroom to its covenants.It is in the process of determining if it can realise some of the substantial value at Moorebank Logistics Park and to reduce its future funding requirements given the sizable capital expenditure it would likely need.
A group of prospective parties has expressed interest to participate in the next stage of monetisation or partnering process for Moorebank Logistics Park and certain other property assets, but this is likely to take longer than previously anticipated in light of the current environment, according to the filing.In 2017, Clean Energy Finance Corp provided a A$150m seven-year bilateral term loan to Qube to back the construction of the Moorebank Logistics Park.
The development was to switch 1.55m freight containers at Port Botany from road to rail, slashing more than 110,000 tonnes of carbon dioxide equivalent a year of transport-related emissions.The park includes up to 850,000 square metres of warehousing, an import-export rail terminal connected to the container terminals at Port Botany and an interstate terminal.In 2016, a consortium including Qube Logistics Holdings raised A$1.05bn loan to back its acquisition of Asciano Ltd’s ports business. ANZ, Citigroup, Commonwealth Bank of Australia, National Australia Bank and Sumitomo Mitsui Banking Corp were the mandated lead arrangers and bookrunners.
The loan is split into a A$500m three-year term loan tranche A, a A$500m five-year term loan tranche B and a A$50m three-year revolving credit facility tranche C. The margin on tranches A and C is 160bp over BBSY, while tranche B pays 180bp over BBSY based on the credit profile of the underlying assets. The borrowing entity is Patrick P&L Bidco. Qube’s business comprises three divisions – ports, bulk and logistics, infrastructure and property, and strategic assets. It also holds a 50% interest in Patrick Terminals, Australia’s leading container terminal operator.
Oil Search to extend bilaterals
OIL SEARCH is looking at an extension of bilateral loans totalling US$300m by nine months and is raising a larger amount through equity to strengthen its balance sheet amid a marked decline in oil prices.
The bilateral facilities will be extended to June 30 2021 from September 13 2020 and are subject to standard regulatory approvals and completion of the A$1.16bn (US$700m) equity funding.Following the extensions, the company will have no corporate loans maturing in the short term, according to its filing to the Australian Securities Exchange on Tuesday.As at December 31 2019, Oil Search had six corporate facilities totalling US$1.2bn, of which US$440m were drawn.
A successful equity funding will raise Oil Search’s pro forma liquidity to US$1.835bn as at December 31 2019, including US$1.07bn cash, US$760m of undrawn debt facilities less a US$4m bank guarantee. Pro forma gearing will be at 28%.Preliminary discussions with lenders indicate a willingness to consider covenant waivers should they be required, according to the filing.
Key financial covenants that are tested semi-annually include requirements for the Ebitda to net interest expense to be equal to or more than 3.0x and for book gearing, inclusive of finance lease, to be equal to or less than 55%.Oil Search is currently compliant with all financial covenants, the filing said.Based on current forecasts, prior to the completion of cost reduction initiatives currently underway, the company expects to comply with the first covenant at June 30 2020.
However, Oil Search faces a risk of non-compliance of the covenant at December 31 2020 and June 30 2021 if the spot Brent crude oil price averages below low US$20s per barrel for 2020 and below low US$30s per barrel for the 12 months ending June 30 2021 respectively, according to the filing.Oil Search is also one of the sponsors for the Papua New Guinea LNG project, which has raised a US$2.939bn non-recourse financing that has no financial covenants and is secured against the project assets.
A minimum cash balance equal to six months of forecast principal and interest payments is held in reserve within the PNG LNG project accounts at all times.
The facility has escrow accounts with sufficient cash retained for almost all principal and interest payments due in 2020, without any additional cashflow from operations.
Cash distributions from the PNG LNG project are only made to Oil Search each quarter once all cash obligations have been met or set aside and minimum historic and forward debt service coverage ratios are achieved.Oil Search has reduced forecast capital expenditure from April 1 2020 to US$200m–$300m from US$400m–$500m.
The company had already announced a 40% reduction in 2020 forecast investment expenditure to US$440m–$530m from US$710m–$845m on March 18 in response to the fallout from Covid-19.In December 2018, Oil Search refinanced two bilateral revolving credit facilities totalling US$250m with three longer-tenor borrowings.
Commonwealth Bank of Australia, Mizuho Bank and Sumitomo Mitsui Banking Corporation Sydney branch provided the new bilateral loans, each of which is for US$100m and carries a five-year tenor.
The bilateral facilities will be extended to June 30 2021 from September 13 2020 and are subject to standard regulatory approvals and completion of the A$1.16bn (US$700m) equity funding.Following the extensions, the company will have no corporate loans maturing in the short term, according to its filing to the Australian Securities Exchange on Tuesday.As at December 31 2019, Oil Search had six corporate facilities totalling US$1.2bn, of which US$440m were drawn.
A successful equity funding will raise Oil Search’s pro forma liquidity to US$1.835bn as at December 31 2019, including US$1.07bn cash, US$760m of undrawn debt facilities less a US$4m bank guarantee. Pro forma gearing will be at 28%.Preliminary discussions with lenders indicate a willingness to consider covenant waivers should they be required, according to the filing.
Key financial covenants that are tested semi-annually include requirements for the Ebitda to net interest expense to be equal to or more than 3.0x and for book gearing, inclusive of finance lease, to be equal to or less than 55%.Oil Search is currently compliant with all financial covenants, the filing said.Based on current forecasts, prior to the completion of cost reduction initiatives currently underway, the company expects to comply with the first covenant at June 30 2020.
However, Oil Search faces a risk of non-compliance of the covenant at December 31 2020 and June 30 2021 if the spot Brent crude oil price averages below low US$20s per barrel for 2020 and below low US$30s per barrel for the 12 months ending June 30 2021 respectively, according to the filing.Oil Search is also one of the sponsors for the Papua New Guinea LNG project, which has raised a US$2.939bn non-recourse financing that has no financial covenants and is secured against the project assets.
A minimum cash balance equal to six months of forecast principal and interest payments is held in reserve within the PNG LNG project accounts at all times.
The facility has escrow accounts with sufficient cash retained for almost all principal and interest payments due in 2020, without any additional cashflow from operations.
Cash distributions from the PNG LNG project are only made to Oil Search each quarter once all cash obligations have been met or set aside and minimum historic and forward debt service coverage ratios are achieved.Oil Search has reduced forecast capital expenditure from April 1 2020 to US$200m–$300m from US$400m–$500m.
The company had already announced a 40% reduction in 2020 forecast investment expenditure to US$440m–$530m from US$710m–$845m on March 18 in response to the fallout from Covid-19.In December 2018, Oil Search refinanced two bilateral revolving credit facilities totalling US$250m with three longer-tenor borrowings.
Commonwealth Bank of Australia, Mizuho Bank and Sumitomo Mitsui Banking Corporation Sydney branch provided the new bilateral loans, each of which is for US$100m and carries a five-year tenor.
Toyota Australia Taps European Demand
TOYOTA FINANCE AUSTRALIA took advantage of deep European demand for decent returns from high-quality corporate names to raise a chunky €1.75bn (US$1.9bn) from a three-part Eurobond last Tuesday.
A regular issuer in much smaller size locally, Toyota Australia was able in one transaction to secure funding for the rest of the year and beyond, even if market conditions remain challenging.
“Toyota Australia has issued euro-denominated bonds twice before and is well known to European investors, but even we were surprised by the scale of interest and orders,” said a banker on the deal.“This stunning trade, following on from Transurban’s €600m 10-year Eurobond on April 3, shows Europe to be a compelling destination for well-regarded Australian corporates at a time when the domestic corporate market still appears closed.
” The €750m 1.584% two-year, €500m 2.004% 4.5-year and €500m 2.28% 7.5-year notes priced 185bp, 220bp and 235bp over mid-swaps, well below 225bp area, 245bp area and 285bp area initial guidance, having attracted a combined €8.2bn-plus final book.
Demand was skewed towards the October 2027s – in line with evident investor desire for duration since global central banks stepped up efforts to support credit markets last month – but Toyota favoured the April 2022 tranche.“A lot of companies want short-dated funding.
They want liquidity but don’t want to pay for, say, a 10-year,” another lead manager said.“The pricing is so much cheaper [for investors] than before and there’s a concession on top as well.” Almost a year ago to the day, Toyota Australia priced two and five-year deals at 13bp and 23bp over swaps respectively.
The two-year came with a negative yield.For its latest trade, the company started with a concession of 65bp–85bp, which was inside the starting premium for Daimler’s trade the previous week.The auto industry is one of the more vulnerable to an economic downturn and was already under pressure before the coronavirus pandemic.
Toyota Australia, rated A1/AA– (Moody’s/S&P), is not eligible for the European Central Bank’s bond buying programme, so relatively big concessions were necessary.The deal suffered no adverse effects from headlines that Toyota Australia is recalling more than 45,000 cars because of fuel pump issues, according to leads Barclays, BNP Paribas, Citigroup, Credit Agricole CIB and Societe Generale.
A regular issuer in much smaller size locally, Toyota Australia was able in one transaction to secure funding for the rest of the year and beyond, even if market conditions remain challenging.
“Toyota Australia has issued euro-denominated bonds twice before and is well known to European investors, but even we were surprised by the scale of interest and orders,” said a banker on the deal.“This stunning trade, following on from Transurban’s €600m 10-year Eurobond on April 3, shows Europe to be a compelling destination for well-regarded Australian corporates at a time when the domestic corporate market still appears closed.
” The €750m 1.584% two-year, €500m 2.004% 4.5-year and €500m 2.28% 7.5-year notes priced 185bp, 220bp and 235bp over mid-swaps, well below 225bp area, 245bp area and 285bp area initial guidance, having attracted a combined €8.2bn-plus final book.
Demand was skewed towards the October 2027s – in line with evident investor desire for duration since global central banks stepped up efforts to support credit markets last month – but Toyota favoured the April 2022 tranche.“A lot of companies want short-dated funding.
They want liquidity but don’t want to pay for, say, a 10-year,” another lead manager said.“The pricing is so much cheaper [for investors] than before and there’s a concession on top as well.” Almost a year ago to the day, Toyota Australia priced two and five-year deals at 13bp and 23bp over swaps respectively.
The two-year came with a negative yield.For its latest trade, the company started with a concession of 65bp–85bp, which was inside the starting premium for Daimler’s trade the previous week.The auto industry is one of the more vulnerable to an economic downturn and was already under pressure before the coronavirus pandemic.
Toyota Australia, rated A1/AA– (Moody’s/S&P), is not eligible for the European Central Bank’s bond buying programme, so relatively big concessions were necessary.The deal suffered no adverse effects from headlines that Toyota Australia is recalling more than 45,000 cars because of fuel pump issues, according to leads Barclays, BNP Paribas, Citigroup, Credit Agricole CIB and Societe Generale.
Indian Lockdown Rattles Lenders
India’s embattled financial institutions are facing further challenges attracting overseas funding as the coronavirus pandemic threatens to cut growth in the world’s fifth-largest economy to 30-year lows.
Loan syndications for Indian borrowers in recent weeks point to growing concerns among offshore lenders of a further deterioration in asset quality as a result of the sharp decline in economic activity and rising unemployment. India enforced a 21-day lockdown on March 25 to combat the Covid-19 pandemic.
In the past month, financial institutions including PNB HOUSING FINANCE and debut borrower HDB FINANCIAL SERVICEShave closed loans with limited syndication.The reception from offshore lenders underscores the weak sentiment towards the Indian financial sector, which is already reeling from a series of defaults.
“Confidence in the financial sector is low and one of the issues people have had is non-performing assets,” said a loan syndications banker at a global bank. “We are only hoping that there are no fresh spurts of NPAs.
Otherwise it could be an even longer journey to recovery.”BANKING SECTOR WOESNPAs at Indian banks are not a new concern, with a systemwide bad loan ratio of 9% as of March 2019, according to the Reserve Bank of India. Since the lockdown began on March 25, Fitch has cut India’s GDP growth forecast for the fiscal year ending March 2021 to 2% from 5.1% previously.
This year could see the slowest growth in the country in 30 years, the ratings agency said. Moody’s on April 2 changed its outlook for the Indian banking system to negative from stable, warning the lockdown will eventually lead to pressure on profitability and capital.India’s banking sector suffered another blow in mid-March when the RBI seized control of beleaguered Yes Bank, the country’s fifth-largest private sector bank, which recorded a surge in gross bad loans to 18.87% of total loans for the quarter ending December 31 from 2.1% a year earlier.
Non-banking financial companies have been wrestling with tight liquidity following defaults and credit scares that began with missed payments from Infrastructure Leasing & Financial Services in September 2018. Dewan Housing Finance, another major NBFC, defaulted on its debt last June.“Debt capital will continue to remain a challenge for most NBFCs,” said one Mumbai-based banking analyst. “There are lenders and investors who at this point in time are
Loan syndications for Indian borrowers in recent weeks point to growing concerns among offshore lenders of a further deterioration in asset quality as a result of the sharp decline in economic activity and rising unemployment. India enforced a 21-day lockdown on March 25 to combat the Covid-19 pandemic.
In the past month, financial institutions including PNB HOUSING FINANCE and debut borrower HDB FINANCIAL SERVICEShave closed loans with limited syndication.The reception from offshore lenders underscores the weak sentiment towards the Indian financial sector, which is already reeling from a series of defaults.
“Confidence in the financial sector is low and one of the issues people have had is non-performing assets,” said a loan syndications banker at a global bank. “We are only hoping that there are no fresh spurts of NPAs.
Otherwise it could be an even longer journey to recovery.”BANKING SECTOR WOESNPAs at Indian banks are not a new concern, with a systemwide bad loan ratio of 9% as of March 2019, according to the Reserve Bank of India. Since the lockdown began on March 25, Fitch has cut India’s GDP growth forecast for the fiscal year ending March 2021 to 2% from 5.1% previously.
This year could see the slowest growth in the country in 30 years, the ratings agency said. Moody’s on April 2 changed its outlook for the Indian banking system to negative from stable, warning the lockdown will eventually lead to pressure on profitability and capital.India’s banking sector suffered another blow in mid-March when the RBI seized control of beleaguered Yes Bank, the country’s fifth-largest private sector bank, which recorded a surge in gross bad loans to 18.87% of total loans for the quarter ending December 31 from 2.1% a year earlier.
Non-banking financial companies have been wrestling with tight liquidity following defaults and credit scares that began with missed payments from Infrastructure Leasing & Financial Services in September 2018. Dewan Housing Finance, another major NBFC, defaulted on its debt last June.“Debt capital will continue to remain a challenge for most NBFCs,” said one Mumbai-based banking analyst. “There are lenders and investors who at this point in time are
China Issuers Buy Back Bonds
Chinese companies have been buying back their offshore bonds in the past month, taking advantage of low cash prices at a time of economic uncertainty. According to IFR calculations, 11 Chinese issuers with bonds listed in Hong Kong or Singapore have announced bond repurchases totalling over US$540m in face value since the beginning of March.
The deals took place in the open market or through private negotiation, but exclude tender and exchange offers.Opportunistic buybacks allow issuers to save on their funding costs and can help stabilise bond prices, giving investors some comfort in times of severe market stress.
For example, SUNAC CHINA HOLDINGS saw its bonds gain more than a point on March 20, outperforming the market, after it announced a US$78.9m bond buyback. A banker said he has encouraged issuers who have bought bonds to make similar announcements.
Most of the issuers making bond repurchases have come from the property sector, which relies heavily on offshore funding. In addition to Sunac, LANDSEA GREEN PROPERTIES, RONSHINE CHINA HOLDINGS, JINGRUI HOLDINGS, XINHU ZHONGBAO, GOLDEN WHEEL TIANDI HOLDINGS, BEIJING PROPERTIES (HOLDINGS) and XINYUAN REAL ESTATE have all announced buybacks. Other issuers include JIUDING GROUP FINANCE, FUFENG GROUPand CHINA SINGYES SOLAR TECHNOLOGIES HOLDINGS.
Buying back bonds below par allows issuers to cut their finance costs. They may even book capital gains in some cases.Food additives producer Fufeng said the purpose of its bond repurchases was to cut financial expenses and gearing. Although none of the issuers disclosed the repurchase prices, the secondary market has provided good references.
Between March 6 and March 13, Xinhu Zhongbao bought back US$7m of its 11.00% notes due March 14 2022. The bonds were bid at a range of 88.50–89.25 during the period, according to Refinitiv data.The Shanghai-listed developer was also able to print a US$200m bond in a club deal on March 24, even though the offshore bond market remained largely closed for Chinese developers and despite a downgrade by Moody’s a week before pricing.Issuers with looming maturities can make substantial savings by buying back their bonds at a discount.A case in point is Jiuding, which already bought back nearly two-thirds of its US$380m 6.5% guaranteed bonds due July 25 2020 since it began to make repurchases in January.
The company disclosed on January 23 that it had repurchased US$85.01m of the bonds in principal amount. Then on March 20 it said it had bought a further US$22.4m and on March 25 it disclosed the purchase of an additional US$28.3m. Just last week, it said it bought a further US$97.57m during the period from March 19 to April 7.
On the other hand, issuers could imperil their ratings if they buy back a lot of bonds far below par.Moody’s and S&P in March downgraded GEO ENERGY RESOURCESafter concluding that the Indonesian coal producer’s repurchases of US$111m of bonds in principal amount at a steep discount constituted a distressed exchange.
The deals took place in the open market or through private negotiation, but exclude tender and exchange offers.Opportunistic buybacks allow issuers to save on their funding costs and can help stabilise bond prices, giving investors some comfort in times of severe market stress.
For example, SUNAC CHINA HOLDINGS saw its bonds gain more than a point on March 20, outperforming the market, after it announced a US$78.9m bond buyback. A banker said he has encouraged issuers who have bought bonds to make similar announcements.
Most of the issuers making bond repurchases have come from the property sector, which relies heavily on offshore funding. In addition to Sunac, LANDSEA GREEN PROPERTIES, RONSHINE CHINA HOLDINGS, JINGRUI HOLDINGS, XINHU ZHONGBAO, GOLDEN WHEEL TIANDI HOLDINGS, BEIJING PROPERTIES (HOLDINGS) and XINYUAN REAL ESTATE have all announced buybacks. Other issuers include JIUDING GROUP FINANCE, FUFENG GROUPand CHINA SINGYES SOLAR TECHNOLOGIES HOLDINGS.
Buying back bonds below par allows issuers to cut their finance costs. They may even book capital gains in some cases.Food additives producer Fufeng said the purpose of its bond repurchases was to cut financial expenses and gearing. Although none of the issuers disclosed the repurchase prices, the secondary market has provided good references.
Between March 6 and March 13, Xinhu Zhongbao bought back US$7m of its 11.00% notes due March 14 2022. The bonds were bid at a range of 88.50–89.25 during the period, according to Refinitiv data.The Shanghai-listed developer was also able to print a US$200m bond in a club deal on March 24, even though the offshore bond market remained largely closed for Chinese developers and despite a downgrade by Moody’s a week before pricing.Issuers with looming maturities can make substantial savings by buying back their bonds at a discount.A case in point is Jiuding, which already bought back nearly two-thirds of its US$380m 6.5% guaranteed bonds due July 25 2020 since it began to make repurchases in January.
The company disclosed on January 23 that it had repurchased US$85.01m of the bonds in principal amount. Then on March 20 it said it had bought a further US$22.4m and on March 25 it disclosed the purchase of an additional US$28.3m. Just last week, it said it bought a further US$97.57m during the period from March 19 to April 7.
On the other hand, issuers could imperil their ratings if they buy back a lot of bonds far below par.Moody’s and S&P in March downgraded GEO ENERGY RESOURCESafter concluding that the Indonesian coal producer’s repurchases of US$111m of bonds in principal amount at a steep discount constituted a distressed exchange.
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