Asian corporarates fall in "China syndrome," but rally back; Zhendai prices $150 million; LUKoil sets talk

By Paul A. Harris and Aaron Hochman-Zimmerman

St. Louis, May 30 - U.S. capital markets faced a China syndrome as the Wednesday session got underway.

In an attempt to take some of the steam out of its raging bull stock market the Chinese government increased a trading tax, raising it to 0.3% from 0.1%.

The strategy appeared to work, at least through the Asian session, with Chinese equities nose-diving and the Shanghai composite index dropping 6.5%, according to one source.

A trader who focuses on Asian fixed income said some Asian corporate bond prices were marked down in Asian trading, but added that there was not a lot of volume

Remarking that it was "pretty much the names you would expect," especially the China property names, the trader went on to say that there had been a turnaround in equities during the New York afternoon, leaving the market with a better tone which helped to counter some of the weakness seen overnight.

Earlier in the session a market source had spotted Citic Resources Holdings Ltd.'s dollar-denominated bonds due 2014 wider by 11 basis points, while Parkson Retail Group Ltd.'s notes due 2012 were 4 bps wider.

Zendai prices $150 million

The trader also noted that the weakness in the fixed income securities of China's property development sector caused an initial sell-off in the only high yielding dollar-denominated Asian issue to price on Wednesday, Shanghai Zendai Property Ltd.'s $150 million of five-year senior notes (B2/B+/B+), which came at par to yield 10%, on top of price talk.

Merrill Lynch & Co. ran the books for the Regulation S deal.

The trader said that Shanghai Zendai's new 10% notes due 2012 were going out at 99¾ bid, par offered at the New York close, after having traded notably lower earlier in the session.

Typhoon Wednesday

The trader also said that the broad emerging markets fixed income asset class more or less traced the same trajectory as had the Zendai notes.

Brazil five-year credit default swaps closed 1 bp tighter on the day after having been 2 bps wider in the morning.

Indonesia and Philippines sovereign CDS ended unchanged, after having widened by a couple of basis points.

The news from China, and the perceived impact on global equities, didn't have much spillover impact, the trader asserted, adding that most of the markets will recover most of the losses.

"When Asia comes back in [during the New York overnight], prices will likely be firmer," the source added.

Prospect News asked the trader whether the tax which the Chinese imposed in the name of cooling off their red hot stock market would succeed.

Historically these kinds of moves have been successful and dampening down the stock market, the source responded.

But the market looks incredibly strong.

"The question is, will there be a knock-on effect for the rest of the equity markets?

"It looks like the answer is, not that likely."

LUKoil sets talk

In primary market action Wednesday, LUKoil set price talk on a benchmark-sized deal (Baa2/BBB-/BBB-) coming to market via Credit Suisse and Deutsche Bank. For a planned 10-year tranche, the talk is for a yield in the Treasuries plus 155 bps area while the 15-year tranche is talked at the Treasuries plus 185 bps area.

Pricing is expected before the end of the week.

Deal parade

From the Middle East, one regular bond sale and two sukuk offerings are on the road.

Emirates Islamic Bank is shopping a $350 million 5-year sukuk (A/positive/A-1/A1/Prime-1/A1). Standard Chartered is the bookrunner for the paper, which will be issued by a special purpose entity in the Cayman Islands.

DIFC Investments is marketing an intermediate maturity sukuk with Deutsche Bank and Goldman Sachs as the bookrunners.

Kuwait Financial Centre Markaz will issue $100 million in floating-rate 5-year bonds. The joint bookrunners are Barclays Capital, the National Bank of Abu Dhabi and the National Bank of Kuwait.

Russian deals

Russia's ALFA Bank has been on the road with plans to sell benchmark-sized bonds. Credit Suisse and UBS will run the books for ALFA.

Finally Russian transportation firm Severstaltrans Group will market a dollar issue beginning next week, with ING as the bookrunner.

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