Singtel Optus bonds made a strong debut on Friday in a broadly steady market as Asian credits look to consolidate their recent gains and a growing queue of prospective borrowers adds to the caution.
Singtel sold 10-year dollar bonds at a spread of 150 basis points over US Treasury yields, 10 bps tighter than the earlier indicated price after the $500 million offer was more than five times oversubscribed. The bonds tightened to 140/136 bps over on Friday as the low allocation resulted in investors scrambling for the bonds.
Meanwhile the broad market was steady ahead of the long weekend in the United States. The Asia ex-Japan iTraxx investment-grade index was steady at 101/105 bps, hovering near the low of 100/110 bps struck in late May 2008. "People are picking up bits and pieces but overall its very quiet because of the long weekend in the US No one wants to be as aggressive as yesterday when they were grabbing all sorts of cash bonds," said a Singapore-based trader.
Singtel's pricing compares with those of France Telecom, rated A-minus quoted at 120 basis points over UST and Verizon, rated A quoted at 152 bps. It is a rare borrower in the bond market, both in Australia and offshore, said one banker. Its last international bond issue was in 1999 when it sold $300 million of 10-year bonds, he said. The issue was mostly sold in Asia with investors in the region accounting for 65 percent of the allocations.
European and Middle East investors bought the rest. By investor type fund managers took 64 percent, banks 16 percent, private banks 10 percent and insurance companies 8 percent. Miscellanous investors accounted for 2 percent. Philippine bonds rose to another high but traders said activity was thin and profit-taking was seen emerging. The Philippines' 6.5 percent bond due in 2020 traded at a new high of 108.75/109.125 cents on the dollar, half a point higher.
These bonds were sold at a price of 99.065 in July. Philippine credit default swaps also shrunk in tandem with the bond spreads. Its 5-year CDS moved in by 10 bps to 150/160 bps. Meanwhile, investors are eyeing the growing queue of borrowers keen to tap the market in the last quarter of the year before interest rates start rising.
That could weigh on the market rally in the weeks ahead. Chinese chemical maker Lumena Resources kicked off on Friday, a series of investor presentations ahead of a possible dollar bond issue. South Korea's state-run Korea Expressway Corp has picked four banks for a benchmark sized dollar bond issuance.
Thomson Reuters data shows Asian borrowers outside Japan sold $47 billion in global bonds in the first nine months of 2009, compared with $25 billion in the same period last year. Local currency-denominated issuance jumped to $245.4 billion from $149.6 billion.