1、Disclosures&Disclaimer:This report must be read with the disclosures and the analyst certifications inthe Disclosure appendix,and with the Disclaimer,which forms part of it.Play interview withShiwen DingFixed IncomeAsia CreditBy:HSBC Asia credit research teamJune 2019The VIEWNew accounting rules sho
2、uld have a limited impact on SOE fundamentals,while we expect lower supply and more subordinated structures for perpetual bonds.Also insideWe revise our Asia credit spread forecasts wider as trade and technology standoff exacerbates downside risks on growth and investment flows.For corporates,we thi
3、nk refinancing concerns about China HY property are overdone and expect a bumpy road ahead for the tech sector;its time to be defensive in Indonesia HY corporates.Asias Bond Markets 1 Fixed Income Asia Credit June 2019 Chinas state-owned enterprises have been relatively quiet in the USD bond market
4、so far this year with issuance of only USD15.8bn,as they continue to enjoy a supportive onshore funding environment with lower funding rates.Looking ahead,we expect net supply from China SOEs to remain low.We revise our 2019 issuance forecast for China IG corporate USD bonds to USD30-40bn from USD50
5、-60bn,and our gross issuance forecast for Asian IG corporate to USD50-70bn from USD65-84bn.On the other hand,some investors have expressed concern after the Ministry of Finance(MOF)announced new financial guidelines about the classification of perpetual bonds,which until recently have almost always
6、been treated as equity rather than debt.Some investors worry that the new rules will increase debt levels and put more stress on the balance sheets of China SOEs is it a perpetual pain or just a limited discomfort?We believe these new accounting rules will have a limited impact on the fundamentals o
7、f SOEs given:1)the aim of the MOFs new accounting guidelines is to curb the abuse of perpetual debt during the deleveraging process rather than to increase the funding pressure on SOEs.This means it is less likely the existing perpetual bonds will be reclassified as debt;2)SOEs have various funding
8、sources and the new guidelines will result in them issuing more senior debt with lower funding rates;and 3)SOEs will now need to explore more real deleveraging tools such as asset disposals,equity funding or collaboration with the private sector.In this months Credit Strategy,we say“Fasten your seat
9、belts”as some of the concerns we have highlighted in the previous month have become more entrenched.Namely,the trade stand-off between China and the US has been escalated by the imposition of tariffs,and separately,the US has clamped down on Huaweis ability to access US technology.This exacerbates d
10、ownside risks as Asias growth was already weakening even before the latest escalation on trade.While monetary policy can provide some reprieve,it cannot offset the damage to trade and the disruption to investment flows in the year ahead.In the next few months,as the investment community adjusts to a
11、 lower growth environment,we believe risk premiums will have to rise.Hence,we expect credit spreads to rise from current levels and have revised our iBoxx ADBI and AHBI-corp spreads out to 215bp and 650bp,respectively,by end-2019(from our previous forecast of 190bp and 590bp).In Credit Review,the ov
12、erall weak macro backdrop cast a shadow over the credit market in May.We have witnessed continuous widening in credit spreads,with the average spread of Markit iBoxx ADBI closing the month of May at a y-t-d wide of 178bp,16bp wider than a month ago.Similarly,the average spread of Markit iBoxx AHBI-C
13、orp finished the month at a y-t-d wide of 584bp,55bp wider than the previous month.However,US Treasury yields touched recent lows by sinking 34-38bp in May,led by 10-year US Treasury which helped to erase some of the indices losses.As a result,Markit iBoxx ADBI and AHBI-Corp gained 1.12%and 0.10%,re
14、spectively,in monthly total returns1.As investors turn more defensive,primary issuance dropped 44%m-o-m in May to USD19bn after peaking in April(USD34.2bn),but was still 12%higher y-o-y versus USD16.9bn recorded in May 2018,with high-quality names more in favour.This brings 5M2019 issuance in the As
15、ia ex-Japan USD bond space to USD129bn._ 1 Total returns defined as sum of capital returns and accrual returns in USD.Editorial THIS CONTENT MAY NOT BE DISTRIBUTED TO THE PEOPLES REPUBLIC OF CHINA(THE“PRC”)(EXCLUDING SPECIAL ADMINISTRATIVE REGIONS OF HONG KONG AND MACAO)Fixed Income Asia Credit June
16、 2019 2 In the sovereign section this month we highlight the exposure of ASEAN countries to the rising trade tensions between China and the US.In particular,the semiconductor supply chain runs prominently through ASEAN,which supplies c15-20%of Chinas electronic and machinery components.The impositio
17、n of additional tariffs by the US on China exports might see a near-term blow to ASEAN economies that are closely linked from a supply chain perspective.However,there are opportunities too if in the longer term,there are supply chain shifts away from China.Over the past year,for instance,the two gre
18、atest beneficiaries have been Vietnam and Malaysia,which have received the highest share of inward FDI in manufacturing.On 28 May 2019,Bloomberg reported that the National Development and Reform Commission(NDRC)has tightened USD bond issuance approvals for real estate companies and lower-tier LGFVs.
19、This,coupled with Bloomberg news report on 5 June 2019 regarding Chinese regulators curbing developers fund raising plans in the onshore market,has sparked renewed investor concerns regarding China property HY developers refinancing risks,as in 2Q-3Q18.We believe these concerns are overdone,taking i
20、nto account the proactive fund raising year-to-date in both the onshore and offshore bond markets.If anything,we anticipate a notable slowdown in USD HY issuance in the summer due to good refinancing progress and modest land banking.In particular,we reiterate our China property HY issuance forecast
21、at USD38-40bn in 2019,meaning that we only expect up to USD4bn of additional issuance for the rest of the year.After rallying for the past four months,the Greater China tech sector is facing a return of volatility as uncertainty rises.Tensions between the US and China have put the sector in the cent
22、re of this tug of war.Investor confidence was rattled and bonds have traded 30bp wider,on average,since 10 May.In particular,Huaweis bonds widened 80-85bp in the same period.While all the tech companies have a certain amount of exposure to the US,the firms could be directly or indirectly affected by
23、 potential regulatory changes.That said,credit fundamentals are no longer a determining factor in bond valuation the key factor is sensitivity to headline risks.Nevertheless,we do not expect any distress scenario as all of the tech firms have strong liquidity and financial profiles.Anticipating furt
24、her spread widening,we lower our sector view to slight underweight from slight overweight.We are also less keen on the bonds from Huawei and its working partners which may face higher downside pressure.Sell Huaweis HUAWEI 22,25,26,27 and Sunny Opticals SUNOTG 23;move Hon Hais HONHAI 21 to hold from
25、buy.Indonesia HY corporate bonds recorded an 11.2%total return in the first five months of 2019.It is time to go on the defensive as,fundamentally,the corporates are still facing operating challenges and macro uncertainties.Heightened geopolitical risks,EM volatility and soft commodity prices add fu
26、rther pressure.On a sector basis,we are cautiously optimistic on property,have regulatory concerns about the natural resources sector and a mixed view on industrials and other corporates.On the USD bonds,after the strong rally,the sector is considered fair to slightly tight in valuation,leaving litt
27、le buffer for potential market volatility.We lower our sector view against the ADBI and AHBI-Corp indices to slight underweight from neutral.And,on a defensive stance,we opt for short-dated credits with resilient performance and reduce positions in high-beta names.Buy LPKRIJ 22 and PBRXIJ 22;sell AB
28、MMIJ 22,APLNIJ 24 and GTLIJ 22.Separately,taking a longer view,we expect to see healthy growth in the HY corporate market in the coming 1-2 years given the number of potential issuers.We list the listed Indonesian companies that generated revenue of at least USD100m in 2018.3 Fixed Income Asia Credi
29、t June 2019 This page has been left blank intentionally Fixed Income Asia Credit June 2019 4 Editorial 1 Overview 5 Credit Strategy 23 Focus List 36 Credit Review 43 Top and bottom performers of the month 51 Sovereign Risk Analysis 53 Monthly Focus:ASEAN Perspectives 54 Asia 61 Republic of India 64
30、Credit Research 83 China Property HY 84 Greater China Technology 94 Indonesia HY Corporates 99 Company News&Analysis 111 Financial Institutions 112 Corporates 128 Asian Economics Desk Reference 138 Asia Credit Coverage 142 Spread and Curve Charts 145 Appendix 153 HSBC Databank 154 Disclosure appendi
31、x 175 Disclaimer 184 Contents 5 Fixed Income Asia Credit June 2019 Introduction In this report,we first provide an update on the overall China SOE space in terms of bond issuance and performance in the USD bond market.Then,more specifically,we assess the impact of new accounting rules will have on t
32、he issuance of perpetual bonds,a popular form of SOE financing.We also provide a summary of the companies financial statements based on their 2018 results.Chinas state-owned enterprises have been relatively quiet in the USD bond market so far this year with issuance of only USD15.8bn as they continu
33、e to enjoy a supportive onshore funding environment with lower funding rates.Looking ahead,we expect net supply from China SOEs to remain low.We revise our 2019 issuance forecast for China IG corporate USD bonds to USD30-40bn from USD50-60bn,and our gross issuance forecast for Asian IG corporate to
34、USD50-70bn from USD65-84bn.Meanwhile,some investors have expressed concern after the Ministry of Finance(MOF)announced new financial guidelines about the classification of perpetual bonds,which until recently have almost always been treated as equity rather than debt.Some investors worry that the ne
35、w rules will increase debt levels and put more stress on the balance sheets of SOEs.However,we believe these new accounting rules will have a limited impact on the fundamentals of SOEs given:1)the aim of the MOFs new accounting guidelines is to curb the abuse of perpetual debt during the deleveragin
36、g process rather than to increase the funding pressure on SOEs.This means it is less likely the existing perpetual bonds will be reclassified as debt;2)SOEs have various funding sources and the new guidelines will result in them issuing more senior debt with lower funding rates;and 3)SOEs will now n
37、eed to explore more real deleveraging tools such as asset disposals,equity funding or collaboration with the private sector.Overview China SOEs:Perpetual pain or limited discomfort?Perpetual instruments have played an important role in deleveraging the balance sheets of SOEs But new accounting rules
38、 will reduce the supply of perpetual bonds we assess the impact We favour SOE perpetuals with high coupon step-ups;initiate buy calls on MINMET 3.75%perp,reiterate buy calls on MINMET 7%perp and CPDEV 7.125%perp Shiwen Ding Associate,Credit Research The Hongkong and Shanghai Banking Corporation Limi
39、ted .hk+852 2822 4527 Keith Chan Head of Corporate Credit Research,Asia Pacific The Hongkong and Shanghai Banking Corporation Limited .hk+852 2822 4522 Fixed Income Asia Credit June 2019 6 Following the introduction of the new rules,China corporate perpetual bond issuance has slowed down in both the
40、 onshore and offshore markets and we expect supply to remain low in the coming months.As Chinese corporates currently issue perpetual bonds with higher seniority and coupon step-ups compared with other Asian names in the USD bond market,we believe the new perpetual bonds will come with more subordin
41、ated structures and lower coupon step-ups.As a result,we favour China SOE perpetual bonds with high coupon step-ups which provide high yield pick-up compared with their senior bonds.We think the risk of SOE issuers triggering the early redemption call on the back of the changes in accounting classif
42、ication is low,as this would have a negative impact on investor relations.Given all of the above,we initiate buy calls on China Minmetals Corps MINMET 3.75%perp-22c.We reiterate buy calls on Minmetals Lands MINMET 7%perp-21c and Beijing Capital Lands CPDEV 7.125%perp-19c.Steady performance accompani
43、ed by lower supply Subdue bond issuance from China SOEs SOE bond issuance in the USD bond market has slowed down since late 2018,especially from central government SOE names.The y-t-d issuance from government-related entities was USD15.8bn,little more than half of the amount in the first five months
44、 in 2018.With the absence of mega deals by large central SOE names such as State Grid and China Petrochemical Corp,bond supply from IG central SOEs declined,with a negative net issuance of USD4.1bn so far this year.IG LGFVs were relatively active with USD6.1bn gross issuance compared with redemption
45、s of USD1.6bn.As a result,the proportion of oil&gas names among total China IG SOE/LGFV space declined by 2ppt,while the proportion of LGFV bonds has increased by 3ppt since our last update in November 2018.Fig 1 Gross issuance of China SOE/LGFV bonds Source:Bloomberg,HSBC The subdue issuance from C
46、hina SOEs has resulted in lower net supply in the overall China IG corporate space.The net issuance of China IG corporate bonds was about USD4.8bn in the first five months of 2019,much lower than for the same period last year,as shown in Figs 2&3.At the same time,China SOEs,if local government fundi
47、ng vehicles(LGFVs)are excluded,saw a negative net issuance of USD3bn.024681012Jan-16Feb-16Mar-16Apr-16May-16Jun-16Jul-16Aug-16Sep-16Oct-16Nov-16Dec-16Jan-17Feb-17Mar-17Apr-17May-17Jun-17Jul-17Aug-17Sep-17Oct-17Nov-17Dec-17Jan-18Feb-18Mar-18Apr-18May-18Jun-18Jul-18Aug-18Sep-18Oct-18Nov-18Dec-18Jan-19
48、Feb-19Mar-19Apr-19May-19USDbnHY LGFVHY Central SOEHY Local SOEIG LGFVIG Central SOEIG Local SOE 7 Fixed Income Asia Credit June 2019 Fig 2 Monthly net issuance of China IG corporate bonds Fig 3 Lower net issuance compared with 2018 Source:Bloomberg,HSBC Source:Bloomberg,HSBC Looking forward,we expec
49、t the IG SOE issuance to pick up slightly in the following months,with redemptions totalling USD11.25bn for the rest of the year.However,the overall supply should stay relatively low given the attractive funding costs in the onshore bond market and a generally more prudent approach to financial mana
50、gement by large central SOEs.As a result,we revise our forecast for China IG corporate USD bond issuance to USD30-40bn from USD50-60bn,and our gross issuance forecast for Asian IG corporate bonds to USD50-70bn from USD65-84bn(see the credit strategy section for details).Given the lower forecast,we t
