Bharti Airtel: One of the Final Fours (14-Apr-18)
We initiate our coverage on Bharti Airtel Ltd (BHARTI IN) (Bharti) with an OVERWEIGHT recommendation on the BHARTI complex which reflects attractive yields (compared to its “BBB-“-rated peers), management’s commitment to cut down debt after its upcoming acquisitions, and the company’s long-term profitability prospect.
Tata Steel: Debt Beneath the Wings (16-Mar-18)
We initiate our coverage on Tata Steel Ltd (TATA IN) (“TSL”) with an UNDERWEIGHT recommendation on all of the TATAIN complex as we believe the complex is fully-valued against its domestic peers (See the Valuation section). We also expect the company’s leverage to increase materially (see the debt section). Among India’s steel producers, we see a better value proposition in the JSTLIN complex (JSW Steel) and expect TATAIN yield to increase in the near term on debt overhang (though we do not expect a rating downgrade).
JSW Steel: Moody’s Premature Rating Upgrade (12-Mar-18)
Moody’s upgraded the senior unsecured bond rating of JSW Steel Limited (JSW) to Ba2 from Ba3 on 6-March. The outlook remains stable. We believe Moody’s upgraded JSW’s senior unsecured bond rating prematurely given management’s plan to borrow an additional USD1.5bn and management’s indication to pursue aggressive acquisitions in the domestic and international markets.
JSW Steel: A Race of EBITDA Against Debt (22-Feb-18)
We initiate our coverage on JSW Steel Ltd (JSTL IN) (JSW) with a NEUTRAL recommendation on all JSTLIN complex as we believe the complex is fully-valued against its domestic peers (See Valuation). We see better value in the VEDLN complex ( Vedanta Resources PLC (VED LN) ) but also do not recommend selling the JSTLIN complex as we believe its long-term credit outlook is positive on rising EBITDA which could lead to an eventual rating upgrade.
HNA: The Inquisition (21-Jan-18)
HNA Group Co Ltd. ("HNA") has gone through a series of negative news since last year and, to us, it is almost akin to the "Spanish" inquisition in Mel Brooke's movie. We have fielded a lot of questions with the press and our clients since we have launched our coverage on HNA ( HNA: Huge, National, & Aggressive (dated 25-Oct-2017) and HNA: No Happy New Answers (dated 31-Dec-2017 ) and would like to share our answers with our readers.
Asian Credit Monitor: 2018 Portfolio Strategy, US Rate Trajectory, China Credit Gap (7-Jan-18)
2017 was a decent year for EM bonds in general (both hard and local currencies), amidst strong portfolio/fund net inflows, higher risk appetite and a resultant stronger incentive to chase yield. Such bullish sentiment has been led by low volatility, giving rise to better than expected risk-reward. The market has regained its composure in the last 1.5yrs or so due to accommodative monetary policy (a slow Fed exit and even slower expected ECB/BoJ QE/QQE tapering), a recovery in commodity markets and alleviation in EM. The weak USD has also acted as an impetus to be long risky assets during 2017. In 2018, we think there is merit in the risk-trade and markets can and will grind tighter.
HNA: No Happy New Answers (31-Dec-17)
Negative headlines and the new 363-day USD bond issuance have significantly raised yields of all HNA-related bonds. While we see an attractive carry on SANYPH 11/18s and SANYPH 12/18s especially for retail investors, we do not foresee a major improvement in HNA's credit profile in the near term. HNA's execution and refinancing risks pose asymmetric downside risk to all HNA-related bonds and we maintain our UNDERWEIGHT recommendation on SANYPH and HONAIR complexes as well as GRCHAR 19s.
Sunac China: In Consolidation Mode (?)(13-Dec-17)
Sunac China Holdings (”Sunac”) is a mid-sized Chinese property developer of high-end residential and commercial properties. Its business is predominantly located in Tier 1-3 cities within the Beijing/Tianjin vicinity, Yangtze River Delta (“YRD”) and Pearl River Delta (“PRD”) regions. The company and its sponsors are known to exhibit highly opportunistic and aggressive qualities which have manifested itself in its early history in the international credit markets. Since then (with the assistance of relatively cheap debt and alternative funding sources), it has aggressively expanded its land bank and scope to encompass tourism/cultural as well as TMT businesses.
Guangzhou R&F: Repricing The Business Model (4-Dec-17)
Guangzhou R&F (“the group” or “R&F”) is a mid-sized Chinese property developer with a strong entrenched product and execution track record in predominantly Tier 1 and 2 residential/commercial property markets such as Guangzhou, Beijing and Tianjin. It has embarked on nationwide ambitions in recent years by venturing into Tier 3 and 4 cities, but not quite at the scale or magnitude of some of its nationwide peers. Nevertheless, it does share similar attributes to some of its more aggressive peers through the group’s extensive use of trust finance and perpetual capital instruments. Hence, overleverage has been a concern in recent years.
In our opinion, R&F’s strong business profile has been offset by lower financial flexibility due to its use of leverage. We concede that the addition of recurring income (via its recent acquisition from Wanda Group) from hospitality assets would be a buffer towards its fixed charges going forward (good long-term diversification). However, this comes at a cost by continued tie-up of substantial amounts of short and long-term capital, which can slow its churn. Given the group’s strategy, we think organic deleveraging through churn is not impossible albeit highly optimistic. We would place a very little weight on any inorganic/external deleveraging in the near foreseeable future.
Getting ZINCronized (30-Nov-17)
Vedanta Resources PLC (VED LN) ("Vedanta")'s rating upgrade by Moody's on 20-November reflects India's sovereign rating upgrade 3 days before, in our view, as operating environment is a main driver in Moody's rating model. Vedanta's improving credit metrics, evidenced by improving first half results, announced on 10-November was self-evident, in our opinion, but India's sovereign rating upgrade by Moody’s on 17-November was the reason why the agency abandoned its conservatism on commodity price projection and subsequently upgraded Vedanta's credit ratings.
The potential positive rating action by S&P, following Moody's upgrade, and Vedanta's lengthening debt maturity profile are both credit and spread positive, in our view. We expect reduced refinancing risk as well as buoyant zinc prices to improve the company's credit profiles and narrow the spread differential between the VEDLN complex and its Indian peers. As such, we initiate our coverage of the VEDLN complex with an OVERWEIGHT recommendation (See the Valuation section below).
HNA: Huge,National, & Aggressive (25-Oct-17)
HNA has grown so Huge it has become a National interest, in our judgment. Its Aggressive acquisitions backed by rising leverage have raised execution as well as refinancing risks. The group's reliance on shadow banking to reach its global aspiration leads us to question the management's long-term strategy. Questionable corporate governance makes it difficult to measure the company's willingness to pay. Though we believe HNA's importance to the Chinese economy could mean an implicit support from the central government or government-owned banks, near-term refinancing risk toward August 2019 pose asymmetric downside risk and we are UNDERWEIGHT on the SANYPH and HONAIR complexes as well as GRCHAR 19s.
China Evergrande Group: The Next Major Challenge (19-Oct-17)
China Evergrande Group (the group) holds the distinction as the largest Chinese property developer by the size of land bank. Its relatively quick but controversial rise to the top has attracted unwanted attention from short-sellers and competitors alike. Nevertheless, the group has managed to steer clear of regulators despite several close brushes with local land authorities and contractors in recent years, as it continues to navigate through the thin political line. The group's rise has been unsurprisingly majority debt-fuelled, supplemented by an aggressive risk appetite in alternative finance and penchant for large-scale acquisitions.