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EMRD Asia Monthly Wrap July 2021

Asia_Monthly_Wrap_July_2021.pdf (.pdf) 02 Aug 2021

Asian deal flow slows in July on sour Chinese sector sentiment

02 August 2021

Asia primary markets saw monthly issuance fall to USD28.49bn in July, from USD21.62bn in June and substantially below the USD37.23bn seen in July 2020 as markets had to contend with a range of headwinds through the month. Asian credit spreads traded in a range in the first half of the month, but then saw steep widening at month end as investors repriced risks in relation to the ongoing Covid spread in Asia, continuing problems in the Chinese property sector (in relation to the government’s three red lines policy) and lastly, what has been labelled a “regulatory crackdown” by the Chinese government on private business, where this month regulators took aim at the Chinese education sector.

News flow remained downbeat regarding the spread of Covid in Asia, as despite a much improved vaccine roll out across many nations, Covid case numbers saw sharp increases. In particular, South East Asia saw some very worrying outbreaks, but numbers have also been climbing in Japan as the Olympics started and also in China where the more transmissible Delta variant appears to be evading some of the world’s strictest quarantine measures.

Elsewhere in the Chinese property sector, ongoing negative news flow from property behemoth Evergrande soured sentiment, which spread to the wider high yield benchmarks. Evergrande saw a series of downgrades as various negative news reports and rumours continued to weigh. Evergrande’s board called a special meeting in late July to discuss a possible special dividend, which took the market by surprise, however any such proposal was soon squashed as news of law suits and court actions on the company pushed its debt to new lows.

Evergrande 8.75% 2025s

Fitch downgraded Evergrande to CCC at the end of July citing “diminishing margin of safety in preserving liquidity, which is fragile and heavily reliant on renewing short-term banking facilities and trust loans, continued access to trade payables and robust contracted sales to generate cash flow”. Fitch also cited a court decision to freeze some bank deposits at the request of China Guangfa Bank Co., Ltd. (BB+, stable) and the suspension of sales by a city-housing authority in Hunan province on suspicion of misappropriation of funds as well as reports that some of Hong Kong's largest banks have declined to provide mortgage loans on two of Evergrande's uncompleted projects in Hong Kong (although this was not confirmed).

Even after Fitch’s announcement, negative news flow continued into the last couple of trading days of July as a Chinese court froze assets of the group, sending share prices and spreads to new lows. Evergrande’s 20% stake in Shanghai-listed Langfang Development Co. was frozen by a mainland court for three years. Short term Evergrande debt ended July trading around the 45c in the dollar area.

Lastly, investors in China had to face a widening of what has been termed the Chinese state’s “regulatory crackdown” in July, where Beijing has sought to exert control over some of the country’s fastest growing economic sectors. At the end of 2020 and into 2021 we saw Beijing reign in the tech sector, in particular with regard to its increasing activities in the Chinese banking system and monopolistic activities. Through the past year or so, Beijing has also sought to cool the housing sector, in particular focusing on debt fuelled growth, by imposing strict rules on companies in an effort to bring long term stability and avoid bubbles. However, July saw the government turn its focus to the Chinese education sector, an area where Beijing has been trying to create a more level playing field for poorer families to access the same resources as more wealthy ones. Beijing has also focused on the sharp growth of the non-state education sector and in particular how they raise funds, threatening to ban VIEs for Chinese companies. VIEs (Variable Interest Entities) have been used by Chinese companies to raise funds in the US, as they allow investors to benefit financially from a company while limiting investor control (enabling Chinese companies to comply with strict rules regarding foreign control).

Beijing also imposed new rules regarding operations and profitability of education companies, but the apparent clamp down on VIEs led investors to speculate on which sector Chinese regulators might take aim at next and duly prompted a rout in Chinese stocks prices (adding pressure to credit spreads. The China Securities Regulatory Commission held a conference call with key banks and investors at the end of July in an effort to reassure the market, however pundits suggest that the new regulations are driven by much higher powers in the CCP, leaving the CSRC with little control over how new policies are enacted.

Lastly, on Friday (30 July) Reuters reported that the SEC will not allow Chinese companies to raise money in the United States in future unless they fully explain their legal structures and disclose the risk of Beijing interfering in their businesses. The move follows steep losses seen for Chinese companies through the month of July, in response to the Chinese government’s new policies.

Itraxx Asia high grade CDS (ex-Japan)

Looking at issuance breakdown, Chinese issuers brought deals with a total size of USD14.51bn in July, representing over 50% of Asia’s monthly volume but slightly lagging behind the USD17.58bn seen in June.

The Chinese corporate sector remained active in July with monthly issuance volumes reaching USD8.51bn. China Modern Dairy issued a debut USD500m 5-year (BBB, S&P) and Xiaomi Corporation printed a USD1.2bn dual-tranche (Baa2/BBB-/BBB). Looking at the property developers, Beijing Capital Development returned with a USD517m 5-year (BBB, Fitch), followed by Sunac China’s USD500m dual-tranche (B1/BB-/BB) and Ping An Real Estate’s USD600m dual-tranche Green (Baa3). Moreover, state-owned issuers also brought a number of USD bonds during July, including Shandong Iron and Steel’s USD500m 3-year (unrated), Aluminium Corporation of China’s USD1bn dual-tranche (A-, Fitch), Zhejiang Provincial Energy’s USD500m 5-year (A2/A+) and CSSC Shipping’s USD500m 5-year Green (A-/A, S&P/Fitch).

The Chinese financial sector saw slower activity in July with monthly volumes of just USD4.98bn, among which China Construction Bank Leasing sold a USD600m 5-year (A2/A, Moody’s/Fitch), Citic Bank USD600m brought a PNC5 AT1 (Ba2) and Shanghai Pudong Development Bank issued a USD700m/HKD2bn dual-tranche (Baa2). Elsewhere, ICBC sold a USD600m 3-year (A2), and ICBC Financial Leasing followed with a USD1.25bn multi-tranche (A2/A).

Hong Kong borrowers brought deals with a total size of USD2.3bn during July, including a Road King Infrastructure USD500m 5NC4 Green (Ba3/BB-) and a Hong Kong Land USD500m 10-year Green (A2/A).

Korea’s monthly issuance dropped to USD2.59bn in July from USD8.08bn seen in June. Korea Gas sold a USD800m dual-tranche (Aa2/AA/AA-), followed by Korea Investment a& Securities’ USD600m dual-tranche (Baa2/BBB) and Nonghyup Bank’s USD600m dual-tranche Social Bond (A1/A+).

Looking at Southeast Asia, Temasek Holdings brought a notable USD2.5bn multi-tranche (Aaa/AAA) bond boosting Singapore’s monthly issuance to USD3.55bn, compared with USD1.99bn seen in June. Meanwhile, Indonesia raised USD1.65bn and EUR500m through its multi-tranche sovereign bond issuance (Baa2/BBB/BBB).

Pakistan also issued a USD1bn multi-tranche tap of its existing bonds (B3/B, Moody’s/Fitch) in July. And India issuer Adani Ports brought a USD750m dual-tranche (Baa3/BBB-/BBB-).


In terms of the pipeline, several issuers started the book building process in August while four aim to price a deal within the next two days. Another seven issuers were seen starting investor calls during July and Korea is expected to issue a Green bond in September.

League Table

Looking at the league table, the top 10 banks remained in the same places as they were seen at the end of June, with HSBC, Citigroup and Standard Charter in first, second and third place respectively.

Asia Macro Wrap


China saw a devastating flood in July caused by “once in a thousand years” rainfall that hit Henan province on 17 July, with a historically high record of 201.9mm falling in an hour. The flood has killed at least 99 people with five still missing, and more than a million Henan people were relocated due to the flood. By 29 July, some villages and cities in Henan were still under water, which will impact the economy is this manufacturing region. 

Also in July China saw a Delta Covid outbreak, originating from the city of Nanjing and spreading to at least 15 provinces and 26 cities in China within 10 days, including the capital city Beijing. The local infections found in Nanjing had reached 185 cases by 30 July and all flights were halted by Nanjing airport, where the Delta variant was believed to be imported. 

Turning to Beijing’s so called “regulatory crackdown”, the government focused this month on the education sector, saying that in order to facilitate the three-child policy and poorer family’s education costs, the government will ban private tutoring and urge institutions that give lessons on the school curriculum to do so on a non-profit basis. The new rules and worries about restrictions on education companies’ financing ability in the new environment prompted an equity price collapse in the sector. For example, the famous English language teaching institution New Oriental saw its stock plunge by almost 90% to USD2.18, compared with USD19.68 seen in February.  

Turning to economic data, on 15 July the National Bureau of Statistics announced GDP growth of 7.9% in the second quarter of 2021, and 12.7% for H1 2021. The data was seen as slightly below expectations as most forecasters had been looking for around 8.2% GDP for Q2. While China continues to lead Asian peers in its growth this year, the recovery is uneven and possibly negatively impacted by the global chip shortage, however FY2021 GDP is still expected to achieve China’s target for the year of “over 6%”. Market forecasters’ targets were little changed on the data at around 8.5% for FY2021 GDP.


Indian Covid cases have remained stable through July, hovering at just over 40k per day, however experts continue to point to the risk of a third wave in the country which would likely start in the Autumn. Latest data suggest that around 4m people died in India’s second wave, 10x official estimates. However as the Delta variant worked its way through the population it is also estimated that around 65% of Indians now have Covid antibodies. Vaccination continues to be hindered by supply problems with some of the larger states completely running out of vaccines this month. Around 7% of the population has had two jabs and 20% one jab.

The IMF became the latest institution to sharply lower its 2021/22 GDP forecast for India, moving its target to 9.50% growth down from its previous forecast of 12.50% (made before the second Covid wave hit the country). The IMF raised its 2022/23 forecast to 8.50% from 6.90% previously. The IMF commented that "Growth prospects in India have been downgraded following the severe second Covid wave during March-May and expected slow recovery in confidence from that setback".

Q2 GDP data will be released at the end of August for India, giving further insight into how badly the second wave hit the economy. Meanwhile industry leaders have warned that many SME businesses will not be able to survive another lockdown as experts remains very concerned of a 3rd wave hitting the country later this year. Some pundits have even described India’s current economic climate as “long Covid”, being weakened so much that any further bad developments could be disastrous for the economy and the fortunes of the Modi government. FY2021 GDP forecasts have continued to be downgraded with the average currently around 9.00% as we await the upcoming Q2 GDP data.

South Korea

Covid cases have remained elevated in South Korea, running just below 2k per day, however while the country considers even further social restrictions it must be said that the Koreans have avoided huge the Delta surges that are currently being seen in South East Asia.

On the vaccination front, South Korea saw a surge in vaccination bookings in July as cases rose, however this prompted vaccine websites to crash with the surge in inoculations resulting in vaccines effectively running out. This has seen a sharp slowing of South Korea’s vaccine drive, currently with 12% of the nation fully vaccinated and around 30% with one dose.

Q2 2021 GDP data was released in the last week of July, coming in at 5.9%, just a fraction below expectations of 6.0% as private consumption improved, led in part by aggressive government spending. Also underpinning the data were strong exports surging 22.4% YOY, helped by demand for semiconductors, cars and ships. However analysts were cautious on the data as slowing vaccine roll out and increasing Covid case numbers are likely to cap Q3 data. None the less FY2021 forecasts have been raised slightly from 3.9% to 4.1%, moving closer to the government’s target of 4.20%.


Malaysia has seen Covid cases surge in July, as the Delta variant has pushed daily numbers to just under 20k per day, bringing the country’s total infections to above 1 million. On 26 July, the Malaysian parliament resumed after a seven-month suspension and the government announced it will end emergency restrictions after 01 August, even though the pandemic is worsening. This has prompted demonstrations in KL calling for the removal of the Prime Minister, whom has also seen support withdrawn from parliamentarians.

Malaysia’s Covid trajectory reflects the trend seen across South East Asia with severe outbreaks in Thailand, Vietnam and Myanmar, as sluggish vaccine roll outs add pressures on the respective health systems.

Q2 GDP data is due in August, however the Malaysian government signalled it will downgrade its economic forecast, possibly to around 4.0% for 2021. Indeed 2021 GDP forecasts have been falling fast this summer as Covid cases rise and due to the political instability in the country. The Asian Development Bank lowered the growth forecast for Malaysia to 5.5% from the April projection of 6% recently, as the lockdown order drags its economy recovery. This brings it into line with current average market expectations of around 5.0% for FY2021.

Lastly, Fitch Ratings affirmed Malaysia's rating of “BBB+” with a Stable Outlook in July, commenting that the “economy is gradually recovering from a contraction of 5.6% in 2020 caused by the Covid-19 pandemic, even though social distancing measures have been tightened over recent months. A nationwide lockdown in place since the beginning of June due to a third Covid-19 wave, is negatively affecting the services sector. However, manufacturing and exports continue to benefit from thriving demand for Malaysia's export products, including electronics, crude oil and personal protective equipment made of rubber”. Fitch forecast FY2021 GDP at 4.5% in 2021 and 6.3% in 2022.


Indonesia has seen the worst Covid outbreak in South East Asia led by the Delta variant, although the wave appears to have peaked in late July, currently around 40k cases per day having reached 56k daily cases at the peak. Infections have spread to a broad range of the population with two Sumatran tigers contracting Covid-19 at an Indonesian zoo, which has puzzled scientists as the zoo was in lockdown. Despite the severity of the outbreak, authorities have already started to lift social distancing restrictions in mid-July. The government has cited falling infections in the capital Jakarta for the easing, but infections have been soaring in other regions, such as Java and Bali. Indonesia‘s vaccine roll our remains painfully slow with just 7% of the population having received two jabs.

The Covid outbreak has prompted a raft of downgrades to FY2021 GDP forecasts with Q2 data due for release in early August. Indonesia’s central bank lowered its estimate to 3.8% from 4.6% previously and S&P lowered their forecast to 3.7% from 4.5%, adding that credit conditions could also be impacted.


Japan has seen an upsurge in Covid cases although it is not clear whether this is due to the influx of people at the Tokyo Olympics or simply due to the fast spreading Delta variant. Emergency measures have been expanded to a number of new regions adjacent to Tokyo and elsewhere in the country with cases now over 12k per day. Japan’s vaccine roll out remains slow with the Prime Minister recently meeting with the head of Pfizer to push for faster delivery of vaccines.

Q2 GDP data will be released in mid-August, however ahead of the data the Bank of Japan revised its FY2021 GDP forecast lower to 3.8% “due to the impact of Covid-19”, from its previous forecast of 4.0%, although this is still some way above market forecasts of around 2.8% for 2021.

All data, unless otherwise stated, sourced from the Bond Radar Data Wizard

yeawhich is expected to see around 1.00%-2.00% growth for 2020. cast flat growth for 2020.

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