汇丰银行-亚洲-信贷策略-亚洲债券市场观察-2019.7-155页.pdf

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 withReks NgFixed IncomeAsia CreditJuly 2019By:HSBC Asia credit research teamThe VIEWWe revisit China HY industrials as supply diminishes and value emerges.Within the sector,we are bullish on HY oil and neutral on HY consumer.Also insideFor Asia credit strategy,we believe investors should use the ongoing rally as an opportunity to reduce risk.Postcard from our investor tour in China suggested a healthy property market.Asias Bond Markets 1 Fixed Income Asia Credit July 2019 To many,it might be an easy call to underweight China high-yield(HY)industrials on a sector basis,citing the high default rate,weak financing capability versus property counterparts,and depressed margins stemming from fierce competition.The weak trading liquidity often makes things worse its not uncommon to see a large intraday swing even on days with limited relevant industry news.However,its unfair to judge every issuer on this basis.Some names in this sector display qualities traditionally favoured by fixed income investors,such as fast growth,clear deleveraging efforts,valuable fixed assets,and industry leadership.We think some of these qualities are underappreciated as a result of the defaults in the sector.This might be a blessing in disguise.In the HY industrial sector,there is currently a clear differentiation between the stronger credits which can issue repeatedly,and the weaker ones which are heavily penalized by the market after initial pricing.This trend is evident in the gross issuance number,with most of the y-t-d issuance coming from repeat issuers rather than debut issues.We think the reduced supply is another reason to revisit the sector as value emerges,especially as it offers opportunities to diversify,especially for portfolios that are dominated by HY property.From a Credit Strategy perspective,we believe the ongoing Asia credit market rallies should be used as an opportunity for investors to reduce risk in their portfolios.Based on ratings,iBoxx ADBI credit quality has been on a less favourable trajectory,with the deterioration accelerating from 2018 onwards.From the fundamental side,there is still no conclusion to the US administrations negotiations with China,Japan and Europe on how to deal with the bilateral trade imbalances.So we take the view that market players optimism around the delay of additional US tariffs as being misplaced,given that the trade and capital investment data should continue to weaken in the months ahead.HSBCs Asian economist feels that global investment could slow anywhere from 0.5-2.1ppt this year from the 3.5%growth seen in 2018 as result of the ongoing economic policy uncertainty that is hanging over the business sector.In the CNH market,PBOC priced RMB70bn bills in 1H2019,bringing total CNH issuance to RMB166bn(bonds and CDs),42%higher compared with the issuance in 1H2018.As most market liquidity was absorbed by PBOC bills,credit bond issuance and CD issuance dropped significantly.We have revised our 2019 full-year CNH issuance forecast to RMB310-350bn from RMB210-250bn,and expect RMB460-500bn CNH bonds to be outstanding at end-2019.CNH bond yield movements mostly followed CNH government bond yields in 1H2019,given the higher portion of rates products in the space,and credit spreads moved marginally lower.Looking ahead,we expect credit bond issuance to remain subdued in the second half of the year.CNH bond performance should see some downward pressure given a potential credit spread correction.However,we believe CNH bonds can still generate positive returns1 in the second half as spread compression should be limited as a large part of the CNH space is comprised of low-beta names._ 1 Total return is defined as sum of capital 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 July 2019 2 Indonesia takes the focus in the sovereign section this month.HSBCs economist believes that labour market reforms,a reduction of FDI restrictions,the strengthening of land acquisition laws and higher educational spending are all necessary goals to lift the countrys sustainable non-inflationary growth rate in the years ahead.These goals can be achieved with the return of President Joko Widodo to office for a second term with a strong voter mandate that should make it easier to pass difficult legislation through parliament.On 20-21 June,HSBC Asia Credit Research team led a two-day credit investor tour to Nanjing and Hangzhou.The aim was to understand the drivers of Chinas ongoing urbanisation process as well as gauge residential property demand in the Yangtze River Delta,one of the key economic powerhouses in China.We believe Chinas urbanization has scope for further development,which creates business opportunities for China Fortune Land(CHFOTN;rated NR/NR/BB-)via its exclusive industrial city public-private partnership(PPP)agreements with various local governments.We also take a more relaxed stance than the market towards property policy tightening,as it reflects the underlying strength of the residential property demand,which in turn is in line with our trip findings.We believe local governments have the flexibility to adjust property policies through proactive management,as has been seen over the years.3 Fixed Income Asia Credit July 2019 This page has been left blank intentionally Fixed Income Asia Credit July 2019 4 Editorial 1 Overview 5 Credit Strategy 32 Focus List 41 CNH Market 48 Credit Review 54 Top and bottom performers of the month 63 Sovereign Risk Analysis 65 Monthly Focus:Republic of Indonesia 66 Credit Research 77 China Property HY 78 Company News&Analysis 85 Financial Institutions 86 Corporates 103 Asian Economics Desk Reference 106 Asia Credit Coverage 110 Spread and Curve Charts 113 Appendix 121 HSBC Databank 122 Disclosure appendix 144 Disclaimer 152 Contents 5 Fixed Income Asia Credit July 2019 Sorting the wheat from the chaff Navigating the minefield To many,it might be an easy call to underweight China high-yield(HY)industrials on a sector basis,citing the high default rate,weak financing capability versus property counterparts,and depressed margins stemming from fierce competition.The weak trading liquidity often makes things worse its not uncommon to see a large intraday swing even on days with limited relevant news.However,its unfair to judge every issuer on this basis.Some names in this report display qualities traditionally favoured by fixed income investors,such as fast growth(Health&Happiness H&H),clear deleveraging efforts(West China Cement),valuable fixed assets(Golden Eagle),and industry leadership(Car Inc).We think some of these qualities are underappreciated as a result of the defaults in the sector.The reduced supply is another reason to revisit the sector as value emerges,which can be a good reason to diversify away from HY property given the recent noise in that sector.Sorting the wheat from the chaff We define China HY industrials as all China HY issuers apart from property developers,local government financing vehicles(LGFVs),and Macau gaming operators.There are around 70 HY industrial issuers in the market with cUSD34.5bn in bonds outstanding less than a third of the size of China HY property market.Due to the material heterogeneity across many of the industrial sub-sectors,we take a bottom-up approach on a sub-sectoral and name basis rather than a top-down approach on the entire industrial sector.In this report,we focus on names that:1)are listed and rated;2)are transparent in terms of corporate communications and disclosures;3)have healthy corporate governance;and 4)have manageable near-term liquidity risk balanced by available financing channels.Bullish on HY oil,neutral on HY consumer,buy CARINC22 We are bullish on the HY oil sector on the back of the favourable supply-demand dynamics,which should create a sweet spot for the HY oil issuers.We have a neutral view on the HY consumer sector due to the still frail growth of China retail sales,in addition to expensive valuations.On a name basis,we reiterate our buy trading call on CARINC22.We initiate coverage of Anton Oilfield Services,H&H and Gome.Overview*This note was previously published on 5 July 2019.China Industrial HY After a painful 2018 highlighted by defaults and sharp price corrections,the sector has split into different layers of quality As value emerges,reduced supply is another reason to revisit the sector,particularly in the yield range of 7-9%Bullish on HY oil,neutral on HY consumer;buy trading call on CARINC22 Reks Ng Analyst,Corporates The Hongkong and Shanghai Banking Corporation Limited .hk+852 3941 7066 Keith Chan Head of Corporate Credit Research,Asia Pacific The Hongkong and Shanghai Banking Corporation Limited .hk+852 2822 4522 Fixed Income Asia Credit July 2019 6 Navigating the minefield China HY industrial sector is not warmly welcoming new joiners;issuance was only 16%of that of China HY property sector in 1H19 The defaults and sharp price corrections in 2018 mean that the sector has segmented into different layers of quality The limited supply is another reason to revisit the sector as value emerges 70 HY industrial issuers,USD34.5bn bonds outstanding We define China HY industrials as all China HY issuers excluding property developers,LGFVs,and Macau gaming operators.There are around 70 HY industrial issuers with cUSD34.5bn in bonds outstanding in this market.Its less than one-third of China HY property market(USD125bn).Of the issuers,half are listed and around 30%do not have international ratings,reflecting the generally low level of transparency and financing capabilities of industrial issuers in China.1.China HY industrial issuance(yearly)2.China HY industrial issuance(quarterly)Source:Bloomberg,HSBC Source:Bloomberg,HSBC It can be easy to step on the landmines Annual HY industrial issuance peaked during the 2017 boom at USD16bn,almost half the level in the HY property space.The divergence between the two increased in 2018 as market turned sour.Industrial issuance was cut by half to USD8.8bn but HY property issuance rose to a record high of USD37.7bn,up 12%y-o-y.A slew of debut industrial issuers tapped the offshore dollar market in 4Q17-1Q18 before Asia credits finished the great tightening in early 2018.A good proportion of them are now trading in the 70s(e.g.Yihua,Zhongrong International and Shandong Sanxing),while others defaulted(e.g.China Singyes,Gangtai).These“landmines”prompted greater investor scrutiny across the sector,from debut issuers and extended to the fundamentally stronger credits.Coupled with the macro deleveraging in China and the tightened onshore liquidity last year,even liquid benchmark HY industrial bonds have suffered from large price swings on negative news flow such as a cancellation of onshore bond issuance.-2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,00020152016201720181H19Yearly gross issuance(USDmn)-1,000 2,000 3,000 4,000 5,000 6,0001Q15 4Q15 3Q16 2Q17 1Q18 4Q18Quarterly gross issuance(USDmn)7 Fixed Income Asia Credit July 2019 3.HY industrial is not a sector that welcomes new issuance 4.USD6.5bn issuance in 1H19,dominated by the university sector Source:Bloomberg,HSBC Source:Bloomberg,HSBC The market is already differentiating between the weak and the strong Its true that HY industrials face fundamental weakness on a sector basis.However,it might be unfair to apply the same tag to everyone under this umbrella.Indeed,some names in this report are displaying qualities traditionally favoured by fixed income investors,such as fast growth(H&H),clear deleveraging efforts(West China Cement),valuable fixed assets(Golden Eagle),and industry leadership(Car Inc).Some of these qualities are underappreciated to various degrees influenced by the previous defaults in the sector.From a bond supply perspective,shrinking issuance also provides technical support in terms of bond prices.In 1H19,gross issuance was USD6.4bn,accounting for only 16%of China HY property issuance in the same period.Most came from repeated issuers rather than debut issues(USD900m).Its fair to say the market is already differentiating between the stronger credits which can still repeatedly issue and the weaker ones which are scarcely traded after initial pricing.Premium versus the China HY property For reference,we now compare the performance of the China HY industrial and property sectors.For each,we have compiled a yield index comprising 15 benchmark issues across the BB and B space,with bonds maturing from 20 to 23(see Chart 5).The current industrial premium over property is 69bp,versus an average of 11bp over the past 1.5 years.It has come down from the high of 155bp at the start of 2019 when discussions about interest rate hikes,geopolitical tensions and a global growth slowdown were dominating the headlines.The first factor is no longer an issue following the coordinated easing by global central banks,while the latter two are still casting a shadow over the market,maybe even more than six months ago.Against this macro backdrop,we think the industrial-property premium is likely to exist for the foreseeable future.At the same time,we note the recent round of tightening with regards to Chinese regulators curbing developers fund raising plans in the onshore market(see China property HY:Dj vu,5 June)so this story is not black and white.Importantly,the absolute level of the premium is arbitrary in nature and highly dependent on the index substituents.We should still appreciate the difference in premiums of individual bonds,considering the various sub-sectors within the entire HY industrial sector.-10,000 20,000 30,000 40,00020152016201720181H19Gross issance(USDmn)Chian HY property issuanceChina HY industrial issuanceAutoConglomerateConsumerEnergyHealthcareMetals and miningTMTUniversity Fixed Income Asia Credit July 2019 8 5.Some premiums over the property counterparts Source:Bloomberg,HSBC Sorting the wheat from the chaff Here we again stress the importance of credit selection.In this report,we focus on names that:1)are listed and rated;2)are transparent in terms of corporate communications and disclosures;3)have healthy corporate governance;and 4)have manageable near-term liquidity risk balanced by available financing channels.-100-500501001502002504.005.006.007.008.009.0010.0011.0012.00Jan-18Mar-18May-18Jul-18Sep-18Nov-18Jan-19Mar-19May-19DifferenceYield(%)DiffChina HY industrialChina HY property 6.Bullish on HY oil sector;neutral on HY consumer sector;buy CARINC22 Source:Bloomberg,HSBC ANTOIL 9.75 20BJEAHM 6.5 22BTSDF 7.25 21CARINC 8.875 22CARINC 6 21CARINC 6.125 20CHGRAU 7.9 20CHIOIL 4.625 22CHIWIN 7.9 21CHMOLY 5.48 22CWAHK 5.25 22EHICAR 5.875 22FOUIHK 6