20220714-招银国际-Fixed_Income_Daily_Market_Update_8页_825kb

CMBI Credit Commentary Summary

Core Content

This document provides a detailed analysis of the fixed income market in China, focusing on the performance of asset management companies (AMCs), the implications of Great Wall's delayed financial reporting, and macroeconomic developments affecting the market. It also includes insights on specific bond issues, market trends, and regulatory support for the AMC sector.

Main Views and Key Information

Market Performance

• Zhanglong (ZHANLO) 4.8% 25: Opened at $5.15%$, with onshore buyers absorbing some loose bonds, though the offering remained strong.
• CNSHAN Perp and CNSHAN 25: Showed some covering as the broader China credit space took a breather from the WTD selloff.
• China AMC sector: The recent sell-off created better entry points for HRINTHs and CCAMCLs. The sector is viewed as having increasing strategic importance with government support.
• Great Wall (GRWALL): Its bond prices were lower, but it is not a near-term default candidate due to its ability to seek temporary waivers and continued payment obligations.
• Huarong (HRINTH): Showed improved performance, with some bonds gaining 1-4 pts. The state-orchestrated recapitalization of Huarong in 2021 helped restore its capital adequacy ratio (CAR) to 12.95%.
• Powerlong (PWRLNG): Completed an exchange offer with a significant portion of its bonds tendered, resulting in new notes issued.

Top Movers

Top Performers:

• COGARD 4.8% 08/06/30: +3.0 pts
• CIFIHG 6.45% 11/07/24: +2.2 pts
• SINOCE 2.7% 01/13/25: +2.2 pts
• CIFIHG 4 3/8% 04/12/27: +2.2 pts
• COGARD 5 1/8% 01/14/27: +1.6 pts

Top Underperformers:

• SINOCE 4.9% PERP: -7.8 pts
• YLLGSP 6.8% 02/27/24: -7.2 pts
• FTLNHD 4.8% 12/15/24: -7.0 pts
• CENCHI 7 1/4% 04/24/23: -5.8 pts
• CSCHCN 11.95% 02/09/23: -5.4 pts

Macro News Recap

• U.S. CPI: Rose to 9.1% in June, leading to a decline in the stock market and continued recession warning in the bond market.
• U.S. Yield Curve: The 2/5/10/30 yield curve reached 3.13/3.02/2.91/2.9%, with the 2s10s inversion at -22bps.
• FOMC Rate Hike: OIS market priced in over 60% probability of a 100bps rate hike in the upcoming FOMC meeting.

AMC Sector Analysis

• Government Support: The Chinese government has shown willingness to support AMCs, particularly through recapitalization and regulatory changes.
• Regulatory Changes: CBIRC guidance allows AMCs to access onshore funding channels with lower risk weighting (from 100% to 25%).
• Onshore Bond Issuance: AMCs have seen a decline in offshore issuance since 2020, with a focus on onshore capital markets.
• Capital Injection: Huarong received a RMB42bn capital injection in Dec'21, which improved its CAR to 12.95%.
• Equity Transfer: MOF transferred 3% of its stake in Huarong to CITIC Group, which now holds 26.46% of the shares.

CMBI Recommendations

• CCAMCL 3 1/4% 01/28/27: Sr Unsecured, Offer price: 93.0, YTW: 5.1%, Modified duration: 4.1, Next call date: 28/10/2026
• CCAMCL 3% 01/20/31: Sr Unsecured, Offer price: 81.5, YTW: 5.8%, Modified duration: 7.1, Next call date: 20/10/2030
• CCAMCL 4.4% PERP: Jr Subordinated, Offer price: 90.6, YTW: 7.1%, Modified duration: 3.6, Next call date: 3/11/2026
• HRINTH 5 1/2% 01/16/25: Sr Unsecured, Offer price: 94.8, YTW: 8.1%, Modified duration: 2.2
• HRINTH 4 1/4% PERP: Subordinated, Offer price: 81.5, YTW: 11.6%, Modified duration: 2.8, Next call date: 30/9/2025
• GRWALL 4 1/4% 04/28/25: Sr Unsecured, Offer price: 90.3, YTW: 8.6%, Modified duration: 2.5
• GRWALL 3.95% PERP: Sr Unsecured, Offer price: 88.9, YTW: 10.6%, Modified duration: 1.8, Next call date: 31/7/2024

Key Observations

• The sector experienced a selloff due to outflows, risk aversion, and asset impairment, but the government's support and regulatory changes are expected to stabilize the market.
• Great Wall's delayed financial reporting did not trigger a default, as it is expected to publish results before the grace period expires.
• The AMC sector remains strategically important in the context of a slowing economy and rising defaults.

Offshore Asia New Issues

• Fujian Zhanglong Group (Green Bond): USD500mn, 2Y11M, 4.8% coupon, 4.95% yield, Issue Rating: -/-/BBB-

Market Conditions

• Onshore primary issuances: 53 credit bonds issued, totaling RMB57bn, with a 0.7% yoy increase in Month-to-date issuance.
• CENCHI: Fitch downgraded its LT Foreign-Currency IDR to 'B' from 'B+', and placed all ratings on Rating Watch Negative (RWN).
• CIFIHG: Controlling shareholders increased their stake to 55.59%.
• COGARD: Intended to purchase corporate bonds in the domestic secondary market.
• DALWAN: Repurchased USD30.5mn of its 8.875% '23 notes.
• FRESHK: Appointed CICC and Deutsche Bank as arrangers for a USD4bn MTN and perpetual securities program.
• GRNCH: Received approval to issue RMB12.5bn corporate bonds.
• HAIDIL: Proposed to spin off Super Hi for separate listing on the HKEx.
• JINKE: Acquired additional nursery properties and put options were exercised.
• TQLTHI: Tianqi Lithium forecasted a significant increase in net profit for H1 2022.

Conclusion

The document highlights the mixed performance of Chinese AMCs, with some showing improvement and others facing challenges. It underscores the strategic importance of the sector and the role of government support in stabilizing the market. CMBI recommends specific bonds for investment based on their valuations and credit stories, while also noting the potential for price volatility due to negative headlines and rating downgrades. The report is intended for institutional investors and includes important disclosures regarding risks and conflicts of interest.