3rd UPDATE: Busy Day In US Corporate Debt, Led By China News

21st Jun 2010 00:02

(Updates with final deal sizes and prices.) By Katy Burne and Chris Dieterich Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Financial service businesses, including two Asian banks, led a new wave of bond offerings by investment-grade companies on Monday, as China's decision to loosen its grip on the yuan improved sentiment. The Export-Import Bank of Korea and Citic Bank International Ltd., the Hong Kong unit of China Citic Bank Corp. both jumped in with sales. "The China news was overwhelming--the market was looking for something positive to rally on," said Sandy Ewing, founding principal at Chapdelaine Credit Partners. The Korean bank, or Kexim, was among six issuers with billion-dollar deals, along with Bank of Montreal (BMO); HSBC Bank, part of HSBC Holdings PLC (HBC); General Electric Capital, the financing arm of General Electric Co. (GE); Shell International Finance BV (RDS.LN); and Covidien International Finance SA (COV). High-grade issuance has accelerated in recent weeks in the absence of market-shuttering news from Europe. Last week's $21.5 billion in volume was the highest since mid-March. Financials have been particularly active, accounting for some $9.8 billion of last week's total. As of Friday, financial firms had issued $162.2 billion in debt so far in 2010, compared with $208.1 billion at this point in 2009. (That excludes debt backed by the U.S. government's Temporary Liquidity Guarantee Program. With that protection, financial firms sold $456 billion by this time last year.) Even if the recent spurt of issuance were to continue, 2010 is unlikely to match 2009, a record year bolstered by government-guaranteed debt sales. Barclays Capital expects investment-grade issuance to fall 20% from the $1 trillion sold in 2009. At the end of last week, issuance this year was less than half of the running total for 2009, not counting government-insured debt. Volume has declined in part because financial institutions are holding onto cash and increasing deposits, so they have had less need to raise capital in the bond market. Additionally, uncertainty about financial regulatory change and fears of a spreading European sovereign-debt crisis have led investors to demand higher yields on bonds. The average risk premium for investment-grade corporate debt--the extra yield investors demand to buy company bonds rather than less-risky Treasury securities--stood at 2.03 percentage points on Monday. That was nearly half a percentage point more than the two-year low reached at the end of April, according to Standard & Poor's. Kexim sold $1.25 billion in 10-year senior unsecured notes through Bank of America, BNP Paribas, Citigroup, Deutsche and Royal Bank of Scotland. The deal priced at 1.98 percentage points over Treasurys. Kexim was last in the U.S. market in March, when it sold $1 billion of bonds, Dealogic said. Bank of Montreal sold $1 billion of three-year notes at 0.925 percentage points over their Treasury benchmark. Bookrunners were Bank of America Merrill Lynch, Barclays Capital, Morgan Stanley and BMO itself. HSBC PLC managed its own five-year, $2 billion issue, which fetched 1.5 percentage points over comparable Treasurys. GE Capital's offering of $1 billion in five-year notes priced at 1.5 percentage points over Treasurys. The deal was led by Bank of America, Barclays Capital, Morgan Stanley and Deutsche Bank. Shell International Finance priced a $2.75 billion deal in two parts, selling $1 billion worth of two-year bonds at 0.35 percentage points over the London interbank overnight rate, and $1.75 billion worth of five-year bonds at 1.10 percentage points over Treasurys. Covidien went to market with a three-part deal totaling $1.5 billion. The medical supplier sold $500 million worth of three-year notes at 0.72 percentage points over Treasurys, $400 million worth of five-year notes at 0.82 percentage points over Treasurys and $600 million worth of 10-year notes at 0.97 percentage points over Treasurys. Notable among a clutch of smaller deals was a $500 million sale for Citic Bank International Ltd., the Hong Kong unit of China Citic Bank Corp. (0998.HK). Citic sold 10-year subordinated bonds at 3.625 percentage points over comparable Treasurys. The sale was led by Barclays Capital and HSBC, with Citic Securities as the co-manager. The Chinese bank hadn't sold dollar-denominated debt since 2007, according to Dealogic; that was before the liquidity crisis that caused U.S. capital markets to freeze up. -By Katy Burne, Dow Jones Newswires; 212-416-3084; [email protected] (END) Dow Jones Newswires June 21, 2010 19:02 ET (23:02 GMT)