Emerging Markets debt sees quiet post-holiday week; Kaisa eyes default; Del Monte prices

By Rebecca Melvin

Concord, N.H., Dec. 3 – Emerging markets debt put in a sleepy week this past week on the heels of the American Thanksgiving holiday, which closed U.S. bond markets last Thursday and Friday.

With the exception of new issues from China, there was virtually no issuance and even the deals pricing in China included smaller deals from less commonly seen issuers.

The emerging markets bond secondary market was also under pressure according to a market source. Meanwhile, retail investors continued to steer clear of emerging markets bond funds, which posted their third straight outflow, according to data tracker EPFR Global. According to EPFR’s weekly update posted on Friday, local currency bond funds took a harder hit than hard currency funds, with three dollars flowing out of local currency funds for every dollar redeemed from funds with hard currency mandates. In addition, outflows at the country level included a record outflow for China equity funds as another major China property developer, Kaisa Group Holdings Ltd., struggled to avoid defaulting on its debt.

Kaisa’s troubles follow China Evergrande Group’s liquidity woes. China Evergrande narrowly averted default after making payments on bonds as the clocked ticked down on 30-day grace periods.

Now Kaisa, a property development company based in Shenzhen, China, is having financial problems. It announced on Friday that the minimum condition was not met under its exchange offer and consent solicitation for its $400 million outstanding 6½% senior notes due Dec. 7, 2021 (ISIN: XS2268673337). As a result, the exchange offer and consent solicitation lapsed.

The company was offering to exchange at least $380 million, or 95%, of the notes. The exchange offer and consent solicitation will not proceed, because the company received tenders of notes of less than that 95% minimum acceptance amount.

As of Dec. 3, $400 million of the notes remain outstanding and will mature on Dec. 7.

The company said it has been in discussions with representatives of some noteholders. As of Friday, no legally binding agreement has been entered into.

To ease the current liquidity issue and reach an optimal solution for all stakeholders, the company is assessing and is closely monitoring the financial condition and cash position of the group. It will explore feasible solutions, including but not limited to renewal and extension of borrowings and disposing of assets, according to Friday’s announcement.

The company said there is no guarantee that it will be able to meet the repayment obligations under the existing notes at maturity.

If the company is unable to repay the notes at maturity or agree with its holders on alternative arrangements, this would have a material adverse effect on the group’s financial condition.

For China energy development services company China Energy Reserve and Chemicals Group Co. Ltd. there was a headline regarding its HK$2 billion 6.3% bonds due 2022 for which a suspension of payments is ongoing as restructuring discussions continue, according to a regulatory announcement.

China Energy Reserve and Chemicals Group Overseas Co. Ltd. is issuer of the bonds.

A revised restructuring proposal was expected to be presented on Dec. 1, but commercial discussions between the company and the asset management t company are still underway. The company expects to present a further revised restructuring proposal on Jan. 3, 2022.

Trading of the bonds listed on the Stock Exchange of Hong Kong Ltd. has been suspended since May 28, 2018 and will continue to be suspended until further notice.

Among interesting transactions was issuance by Philippines’ Del Monte Pacific Ltd. It said it priced $90 million of 3¾% three-year senior notes at 99.3 to yield 4%, according to a regulatory release on Friday.

The deal marks the company’s inaugural issuance in the international debt capital markets, according to the update of the company’s Nov. 22 disclosure.

Credit Suisse was global coordinator and lead manager together with Union Bank of the Philippines.

The Regulation S notes are approved in principle to be listed on the Singapore Exchange Securities Trading Ltd.

Based in Taguig City, Philippines, Del Monte Pacific is a packaged fruit and vegetable producer.

A number of other deals were issued this past week but priced a week earlier including China’s Chengdu Communications Investment Group Corp. Ltd., which issued $600 million of 2.2% bonds due 2024 (expected: //BBB+) on Wednesday. But the deal priced at par on Nov. 24, according to a company announcement.

China Everbright Bank Co., Ltd., via its Hong Kong Branch, also priced $300 million of 1.27% notes (BBB+/BBB) due 2024 on Nov. 24 and issued the notes under its $5 billion medium-term note program on Wednesday.

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