20231128-招银国际-HAOHUA_CNBG_SYNNVX__Leverage_plays_on_central_SOEs_11页_786kb

Summary of CMBI Fixed Income Credit Commentary

Executive Summary

The report initiates buy recommendations on specific bonds of Chinese SOEs, focusing on ChemChina, HAOHUA, CNBG, and SYNNVX, as leverage plays due to their strategic importance and yield advantages. Key recommendations include HAOHUA's shorter-dated bonds, CNBG's notes and perp, and SYNNVX's bond. These are supported by yield pick-ups, strong government backing, and manageable sanction risks. The analysis highlights ChemChina's role in food security, debt reduction through net redemptions, and robust funding access.

Key Recommendations

• HAOHUA: Buy preferred bonds (e.g., 3⅜’24 and 4⅞’25) for yield pick-ups of 21-84bps over peer SOE bonds, capitalizing on curve normalization.
• CNBG: Initiate buy on 3⅜’24 bond and its 3.1% Perp (callable 07/12/24), with expected call in Jul’24. This leverages ChemChina's support and strong funding access.
• SYNNVX: Buy 4.892’25 bond for 60bps yield pick-up over HAOHUA’s 4⅞’25 bond and 90bps over SYNGEN’s 5’26 bond, with exposure to SYngenta AG's agrochemical business.

Company-Specific Analysis

• ChemChina: Integral part of Sinochem Group, strategically vital for China's food security via acquisitions like Syngenta AG. Has strong SOE status, mitigating default risk and backed by government support.
• HAOHUA: Involved in petrochemicals and agrochemicals; bonds offer higher yields. Revenue and asset contributions to ChemChina remain significant.
• CNBG: 84% owned by ChemChina, focused on chemicals and refineries. Strong track record in bond calls and access to low-cost funding through SOE status.
• SYNNVX: Represents Syngenta AG's bond issuance, linked to ChemChina. Aims are research, acquisitions, and debt retirement, with risk-reward appeal.

Financial Highlights

• Debt and Funding: ChemChina and CNBG have high debt levels but good credit metrics (e.g., EBITDA/interest coverage), backed by strong banking relationships. Net redemptions reduced net debt; short-term funding costs are low.
• Performance Metrics: HAOHUA, CNBG, and SYNNVX bonds offer favorable yield pick-ups. ChemChina's EBITDA margin is ~13.9% (2022), with debt/EBITDA at 6.9x; CNBG's margin is ~7.1% for 9M23.
• Sanction Risk Priced In: Companies raised USD3.2bn collectively since sanctions; bonds reflect this risk, with no further underestimation expected.

Risk Considerations

• Sanction risks are incorporated into valuations, and companies demonstrate resilience through market access.
• Curve normalization favors shorter-dated bonds, and SOEs like ChemChina benefit from government support during market stress.
• Overall risk-reward profile is positive with government backing, though fundamentals depend on sector performance (e.g., agrochemicals with weather sensitivity).

Regulatory and Market Context

• The commentary is based on SOE reforms and funding strategies. CMBI analysts certify personal views align with the report, and no conflicts are disclosed for trading in covered stocks.