Credit-default swap trading on Hutchison Whampoa rocketed last week on the back of demand from convertible arbitrage players and hedge funds, according to traders in Asia. "The bid has been driven up by convertible bond arbitrage players," said Loic Fery, Asian head of credit derivatives at Crédit Agricole Indosuez in Hong Kong. Fery noted that Indosuez entered several of the trades, declining to elaborate. He continued that interest was seen across the curve, in two-year, three-year and five-year. "Hutch is probably the best value for a single-A credit in Asia," added Fery. He noted that last Monday, the two-year default swap was around 125-140 basis points and tightened to 120-130bps by Wednesday.
A trader at a rival house in Hong Kong said about USD120 million had traded in the credit across the curve by Wednesday, whereas in a typical week about USD50 million trades. He continued that firms with convertible arbitrage desks as well as funds have been eyeing Hutchison to hedge credit risk for asset swaps.
An analyst at a U.S. house in Hong Kong noted that the weak global telecom market has impacted Hutchison as it has shareholdings in Vodafone Group and Deutsche Telekom. "These stocks have come down since Hutchison made its last provision," she added. The analyst continued that as Hutchison will announce earnings in March, it will have to mark the shareholdings to market, which it last did in August, and this will show a loss. Vodafone fell from GBP1.365 in August to GBP1.30 while Deutsche Telekom plummeted from EUR19.1 to EUR15.9.
A trader in Tokyo noted that this has spurred holders of Hutchison Whampoa International's three-year USD3 billion Sept. 2003 convertible bonds to purchase credit protection.