Chinese firms are increasingly feeling the effects of escalating tensions between Beijing and Washington. While the focus has been on TikTok and Huawei in recent months, China National Chemical Corp is the latest, to feel the fallout effects. The state-owned firm is struggling to elicit strong demand on unveiling $3 billion worth of bonds.
China National Chemical Bond Offering
Investors appear to have developed cold feet about investing in the company’s $2.4 billion bonds and 500 million euro offer owing to concerns over U.S sanctions. Pentagon has already added the company to a list of companies with ties to the Chinese military. As it stands, the company is at risk of the same fate that befell Huawei, given its close ties to the Chinese government.
Spreads in the China National Chemical Corp’s bonds have widened to as much as ten basis points, denting a big blow to the Chinese firm’s first global fundraising drive. The widened spreads signal subdued investor interest to sanctions, concerns that could take a toll on the company’s operating metrics going forward.
The Chinese company has priced its five-year bond at 50 basis points. The ten-year bond, on the other hand, came at 40 basis points tighter than 275 points over treasuries.
The widened spreads indicate that the initial pricing did not factor investor concerns. There are concerns in the bond market that the spread could remain the widest among state enterprises as tensions between Beijing and Washington continue to edge higher.
Investors and fund managers are increasingly shunning Chinese linked investment as relations between the U.S and China continue to deteriorate ahead of the November Election. The U.S warning of sanctions on Chinese firms is expected to trigger a reaction from Beijing, something that could take a toll on a number of companies.
Delta Airlines $6.5 Billion Bond
Even as Chinese companies continue to struggle in the bond markets, U.S companies are increasingly taking advantage of the low borrowing environment fuelled by record-low interest rates. Delta Airlines and its subsidiary SkyMiles IP are the latest to venture into the bond markets.
The two are planning to offer bonds for an aggregate of $6.5 billion. SkyMiles is to lend proceeds from the offering to Delta after depositing part of it in its reserve account. Delta, whose operations have taken a significant hit owing to the COVID-19 pandemic, intends to use part of the bond proceeds for general corporate purposes. The financing should also help bolster the airline’s liquidity levels that have tanked significantly.
Exim Bank Bond Offering
Separately Korean state-run Exim Bank has issued $1.5 billion worth of foreign bonds. The state-run financial institution has sold three-year-old bonds worth €500 million, a five-year bond worth $400 million, and a ten-year bond worth $500.
Exim Bank drew 5.1 times the proposed amount from the bond offering, alluding to the market’s strong demand. The bank intends to use proceeds from the offering to support small businesses hard hit by the COVID-19 pandemic. Part of the financing will also allow the bank to finance its New Deal project to spur the Korean economy.