Asian spreads widen further

Asian bond spreads widened on Wednesday for the second session running amid concern over high oil prices and weakening corporate profits in the United States, Asia's largest export market.
Newly sold five-year bonds from China's Nine Dragons Paper (Holdings) Ltd widened slightly to 507 basis points (bps) over US Treasuries from the 505 basis points at which the paper board producer sold the $300 million in debt.
The iTRAXX Asia ex-Japan high-yield index, a key measure of risk aversion, widened a few basis points to around 508 bps from Tuesday's close, according to one trader.
"Unfortunately for Nine Dragons, the market has gone weaker because of concerns over US earnings and higher oil prices. Nine Dragons is trading wider, but in line with the market," said the Hong Kong-based trader.
Nine Dragons priced its bond overnight at a yield of 8 percent, matching guidance provided earlier this week, according to a term sheet obtained by Reuters. The issue was rated "BBB-", or the lowest investment grade, by both Standard & Poor's Ratings Services and Fitch Ratings.
The deal received over $500 million in orders from around 70 accounts, according to a source familiar with the deal. A fund manager for one major foreign asset management firm in Singapore who had bought Nine Dragons' debt said the rating had not helped the sale.
Nine Dragons is committed to adding 100 basis points to the coupon paid to investors should it be downgraded by either of the rating agencies, and it will add a total 200 basis points should the downgrade be to below BB, just two notches below BBB-.
Merrill Lynch was the sole underwriter for the deal. Despite the reticence of some investors, the Nine Dragons bond sale is reviving hopes that more issuers will come forward. Korea Southern Power Co Ltd (KOSPO), part of Korea Electric Power Corp, Hong Kong-based conglomerate Swire Pacific and Nine Dragons have sold a combined $1 billion in dollar-denominated bonds this month.
Shinsegae Co Ltd, South Korea's second-biggest department store operator, is in the middle of a roadshow, having met investors in Hong Kong on Monday and Singapore on Tuesday, two sources told.