Initiate with Hold    Shandong Ruyi recently printed its second USD bond (USD200million of 5NC32022notes) at 7.875% ytm, wider end of the announced guidance of 7.75-7.875% (per Bloomberg). Bonds have been weak in secondary trading,currently ~1.5points lower than the reoffer price. Even the old 2019s are down~2points compared to pre new bond announcement levels. This is partlydriven by general market weakness and partly due to concerns around thirdparty guarantees (post recent headlines on Shandong Yuhuang).    We like the textile business from a diversification perspective and Ruyi seemswell placed with large-scale operations and diversified geographic exposure.However, we remain concerned on high leverage (~9x as of Dec-16) andunlisted nature. Full-year consolidation of SMCP will help somewhat(estimated proforma leverage of ~7x as of Dec-16), though leverage will stillremain high. Also, the company’s continued aggressive expansion plan willlimit any deleveraging in the near term. Subsidiary IPOs/listing could be apositive trigger but unlikely in the near term, in our view. Thus, we do not seeany imminent positive trigger for material outperformance though downsideshould be limited from current levels. Thus we initiate on existing 2019s andnew 2022s with Hold.    Relative value    n Given lack of direct comps we look at other China HY industrial bonds.Admittedly, familiarity with business (Texhong) and subsidiaries (Renown& SMCP) does give some comfort over other recent issuers. While on theflipside, bonds look fairly valued to expensive on a rating-adjusted basis.Looking at Reward International, another unlisted consumer/retail creditwith high leverage and recent international acquisition, which has 2020scurrently trading at ask ytm of 8.2%. We expect comparable Ruyi to tradetighter given our preference for textile over dairy, scale advantage andbetter shareholding profile despite lower margins. Amongst other recentissuers, we expect comparable Ruyi to trade tighter than Tunghsu 2020s &Yuhuang 2020s and in-line to slightly wider than Huachen 2020s (utilitybusiness). Lastly, we do relatively prefer higher-rated China Grand AutoPerp (Buy) trading at ask YTC of 6.3% (callable in Dec, 2019). At the sametime worth highlighting that China Grand Auto’s parent, Xin Jiang GuangHui, has similar rated 2020s which is trading wide at 9.3% ask ytm.    n Outside China, Sritex (B1/BB-, M/F) is probably the closest comparablefrom business perspective. Sritex is smaller in size though has better creditmetrics. We expect Sritex to trade tighter (listed company, higher EBITDAmargins and lower leverage) though current gap does looks wide to us.That said, we do think this is primarily on Sritex being expensive. Wecurrently have Sell recommendation on Sritex 2021s and 2024s.    Upside risks include better-than-expected operational performance andsubsidiary IPO/equity raising leading to decrease in leverage. Downside risksinclude large debt-funded expansion, requirement to meet their third-party debtguarantee, potential negative rating actions on continued high leverage.

声明：如本站内容不慎侵犯了您的权益，请联系邮箱：wangshiyuan@epins.cn 我们将迅速删除。