ASIA CREDIT CLOSE: Subs, perps, HY in favour among Asian investors

TOKYO, October 10 (IFR) - The continuous flow of funds intoemerging markets bond funds are giving a fillip to newly mintedbonds in the secondary credit markets, with investors shruggingoff a heavy issuance pipeline.

Indeed the reception to the four deals that priced lastnight by Sunac China, United Overseas Bank, Syndicate Bank andLifestyle suggest that there is still an enormous pool of fundsthat have to be put to work with only three months left of 2012.

Today's secondary markets are reflecting more focus onbetter-yielding subordinated, hybrid and high-yield papers, andthis is not just limited only to Asia as regional private banksdrive cash bonds higher.

Indeed, the cash bonds outperformed synthetic creditspreads, perhaps with the exception of those for Indiancorporates.

The iTraxx Asia ex-Japan IG widened about 1bp to130.5bp/132.5bp, according to Markit, although traders quotedlevels that were flat to yesterday's levels.

China's 5-year CDS was up around 1.2bp on the day at84.5bp/86.5bp. Markit had the Philippines' cost of protection1.5bp higher at 116bp/121.5bp and Indonesia roughly unchanged at141.5bp/146bp, though traders had quotes that were a touchtighter.

But it was the sharp compression in CDS spreads in Indiannames over the past 24 hours that caught the market's attention.The CDS of ICICI, SBI, Reliance Industry, Exim India and IOICorp were among the top Asian tighteners in the past 24 hours.

ICICI's spreads tightening the most over the past day withits CDS easing nearly 8bp for a quote of 299bp/327bp, while SBItightened about 5bp to 249bp/272bp.

Traders attributed the sharp falls to the significant marketreforms announced by the government over the past month, whichhad included raising the price of subsidised fuel to rein in thebudget deficit, opening the retail sector to foreignsupermarkets and raising the bar on foreign investment inairlines.

The market were expecting the reforms to avert a potentialrating downgrade for India, and the response to Syndicate Bank'sdeal seemed to vindicate the markets' positive sentiments.

But this may become a short-term relief, as the rallies wererudely checked this afternoon by an S&P report that said therecent reforms were only "slightly" revising its view on thecountry's credit rating. It said there was still a significantchance of a rating downgrade.

Syndicate Bank's newly printed USD500m 5.5-year Reg S, thetightest print from an Indian commercial bank this year in USdollars, skidded on the agency's report. Around lunchtime, thepaper was quoted at UST+354bp, slightly inside the issue priceof T+355bp, but this jumped to +359bp in the afternoon session.

A trader said that a lot of bids on Syndicate Bank as wellas other Indian banks were checked following the S&P's comments.

Other newly priced deals fared better. Traders in Hong Kongand Singapore were active in the new HY bonds from Chinaproperty company Sunac. The 5NC3 Reg S notes firmed by around1.5 points, quoted at 101.5 today versus the reoffer price atpar yesterday. The bonds were quoted at 100.85/101.00 earlier inthe day.

HK department store operator Lifestyle also did well. Its10-year bonds priced at UST+265bp yesterday for a USD300m issuesize. They were at T+253bp in the morning session and quotednear the close at T+248bp, according to one trader.

Traders also reported better support for Chinese bondstoday, after the PBOC intervened in the market on Wednesday witha massive liquidity injection. While Chinese money market ratesplunged after the intervention, Chinese bonds were said to bebetter bid.

Not only Asian issuers are generating interest in themarket. France's CNP Assurance priced overnight a USD500mperpetual non-call six sub debt with a 7.5% coupon at par.Today, the paper was quickly bid up to 101, thanks to Asianinvestors which had taken a chunky 89% of the deal's shareallocation.

The vast majority of the paper of over 90% was heard placedwith PBs, but they did not seemed to have enough of the paperand remained buyers across the day with the notes quoted by Asiaclose at 102/103.

Strong demand and interest is also reported for Asiancorporates with the market excited about potential issues fromSK Telecom.