RHB FIC Credit Market Update - 15/10/15

15 October 2015

Credit Market Update

           

Weaker Retail Sales and PPI Cast Doubts to Fed Hike; Parkson’s Rating Slashed to B+

APAC USD CREDIT MARKETS                                                    

¨      Weak US retail sales and PPI point towards delay in Fed’s rate hike, UST strengthened accordingly. Cost of credit insurance as measured by the iTraxx AxJ IG declined c.1.3bps to 142.9bps on the back of sparse spreads tightening of c.2-4bps as seen in the CDS of Republic of Indonesia, Republic of the Philippines, Korea Development Bank and Reliance Industries. Meanwhile, UST gained as benchmark yields narrowed c.7bps with 10y closing at 1.97% as market continue to speculate a delay of Fed rate hike following weaker-than-forecast retail sales and PPI data of 0.1% and -0.5% MoM in Sept, compared to forecast of 0.2% and -0.2% respectively.

¨      IG credit spreads widened a tad by 2bps to 165bps*. Utilities, real estate and O&G players were the main underperformers as spreads widened c.3.2bps among them led by PETMK 19, Pertamina 21, Wanda Properties 18, Franshion 21, Hong Kong Land 22 and CHGRID 23.

¨      Commodities players lose momentum, HY credits too - average yields widened by 3bps to 9.42%*. The recent bout of gains among HY commodities players have finally bucked the trend as yields of JSW Steel 19, Yancoal 22 and Vedanta 18-23 rose c.4bps. Elsewhere, gainers and losers are scant as seen in c.5-10bps tightening of Evergrande 18-20, Yingde Gases 18, Central China 18 and Agile Property 19 while selected underperformers include Sunac China 18, Greenland 16 and Golden Eagle 23 as yields widened c.4-10bps.

¨      Agricultural Bank of China tapped the market for its inaugural green bond issuances. Agricultural Bank of China (AGRBK) priced its green bonds via a 3-tranche issuance of USD400m 2.125% 3y senior at T+120bps, USD500m 2.75% 5y senior at T+140bps and CNH600m 4.15% 2y senior. In our view, AGBRK’s 3y and 5y USD green bonds are tightly priced given current trading levels of T+117bps and 136bps as compared to existing AGRBK 12/18 and AGRBK 5/20 seniors of T+120bps and 130bps, respectively.

¨      Parkson Retail’s rating chopped to B+ by Fitch. The downgrade from BB- to B+ with a negative outlook is due to the continued deterioration in the company’s core business and increasing leverage despite the cancellation of the proposed acquisition of Parkson Retail Asia Limited. The rating agency also stated that the negative outlook reflects the uncertainty over when retail sales will stabilize. Accordingly, Parkson Retail 18 widened c.8bps following the downgrade. Downgrades continue to outweigh upgrades as Fitch’s upgrade/downgrade ratio is at 0.7x YTD compared to 0.62x last year. Similarly, Moody’s and S&P’s upgrade/downgrade ratio are around 0.5x YTD representing a deterioration in Asia Pacific’s credit profile.

¨      Disappointing US data; Chinese CPI lower-than-expected and attention on US CPI later today. US’ retail sales only gained 0.1% MoM compared to expected and previous month’s gain of 0.2%. PPI recorded a larger-than-expected drop of -0.5% MoM vs consensus of -0.2% and Aug’s flat data. Over in Asia, China’s Sept CPI printed at 1.6% vs consensus: 1.8% and Aug: 2%. Focus will be on US’ Sept CPI data later today as the market will look to interpret and predict Fed’s interest rate decision, consensus view is for a 0.1% drop (Aug’s CPI YoY: 0.2%). 

*based on RHBFIC internally-generated index.

SGD CREDIT MARKETS

¨      Flatter SOR as MAS opted to ease further. The short-to-mid SOR mildly flattened yesterday, with only the 2y rising to 1.63% (+2bps) while the 5y was unchanged at 2.22% as the MAS monetary policy easing announcement was largely within market expectations. Interest was seen in HY names like ASPSP, IHCSP and HYFSP which traded 5-10 bps tighter (based on Bloomberg). There was mixed activity in TRIOIJ names after Trikomsel announced that it would be restructuring its debts due to negative financial performance partially emanating from the weak IDR. In the primaries, Perennial Real Estate Holdings (NR), a predominantly China-oriented property player, printed a SGD150m 3y at a final price of 4.65%.

¨      MAS marginally reduced the slope of appreciation while keeping the width and the centre level of the policy band unchanged while announcing the estimated 3Q GDP results, which came in stronger than expected with YoY at 1.4% (consensus: 1.3%) while the QoQ narrowly avoided a technical recession, coming in at 0.1% (consensus: -0.1%). Looking ahead, investors will be eyeing the Sept NODX numbers (consensus: -3.9%; Aug: -8.4%) to be released tomorrow morning.

MYR CREDIT MARKETS

¨      Credit ended mixed amid lack of fresh catalyst. Corporate space ended on moderate trading flows of MYR363m on Tuesday. 65% of the trading activity was concentrated in the short tenure papers. Government-related entities topped the volume chart – PASB 2/16 tightened 12bps to 3.228% on MYR80m transactions; while on combined trades of MYR70m long-dated DanaInfra 11/29-4/30 rose 9bps-11bps to 4.739%-4.75%. Elsewhere, AAA-rated middle-eastern investment company, GIC 3/16 settled 2bps higher at 3.958%.

¨      Rollover of MYR8.2bn MGS maturity today could support local govvies. The key highlight on Tuesday was the reopening of MYR3bn GII5y where the auction ended on moderate bid-to-cover ratio of 1.84x on average yield of 3.989%. Post-auction, the GII5y was under pressure as yield clinched 0.7bps higher to 3.996% before the mid-week break for Awal Muharram. On the conventional front, the MGS benchmarks moved sideways to 3.63%-4.10% (-1bps to +2bps) as lower oil prices of USD49/barrel pressured the Ringgit to 4.22/USD on Tuesday. Nevertheless, the Ringgit is strengthening to 4.12/USD this morning amid weaker retail sales and PPI data from US; as well as falling CPI and import numbers from China. Looking ahead, the huge MGS maturity of MYR8.2bn today could provide short-term support to the local govvies.