Credit Market Watch: Summary for week ending 4-Sep

Credit Market Watch: Summary for week ending 4-Sep

·         MYR Credit:

Ø  Malaysia's external reserves was surprisingly stable and marginally higher at USD94.7b as at 28 Aug from USD94.5b on 14 Aug, but the foreign reserves to short-term debt (redefined) cover ratio declined to 1.0x.

Ø  PDS yields tightened during the week, tracking the rally in MGS. Bid/offer remains wide and trade was mostly at the short end and the belly.

Ø  Ratings update: Jimah East was assigned a preliminary rating of AA- by MARC despite TNB holding 70% equity interest. Recall that Kapar, which is 60% held by TNB, is rated AA+.

Ø  Plantation names: Last week we sent a credit update report on KLK, FRL and BAL, highlighting that their stretched financial metrics are weighing on credit outlook. The companies' still favourable operating and liquidity profile may still avoid negative outlook, but if metrics continue to deteriorate amid challenging CPO prices could shift the stance.

·         Asian USD Credit:

Ø  Asian credit space was generally quiet ahead of the US nonfarm data in a holiday-shortened week in China. Sentiment remained cautious and interest centred on papers with <5y in tenor. WoW JACI composite +5bps, JACI IG +3bps and JACI HY +13bps.

Ø  Sovereigns traded in range, with yields on INDON, MALAYS and PHILIP pretty much unchanged WoW although there was buying interest on longer-dated INDON. OGIMK'23 fared better recovering to 7.85% as we write.

Ø  Late part of the week saw two-way flows on Indian names, and some buying on Korean financial names while Malays names were mostly on the sell side.

Ø  Rating changes: Among others, Sime Darby's rating outlook was revised to negative by Moody's, citing elevated leverage and failure to de-gear within 6 months could lead to a downgrade. Meanwhile, Moody's placed CITIC Securities on review for downgrade due to its senior management and employee's investigation by police.

·         CDS: EM Asia 5y CDS spreads moved higher over the week, with Indonesia, Malaysia and Philippines the underperformers widening by 16bps, 14bps and 11bps WoW.