RHB FIC Credit Market Update - 27/10/15

27 October 2015

Credit Market Update

           

Asian Borrowers on a Roll Post-PBOC Cuts 

APAC USD CREDIT MARKETS                                                    

¨      Risk-on mode kept credit markets afloat. The easing of monetary policies by China and EU to support respective ailing economies kept investors increasingly pessimistic on a Fed rate hike this year with current probability of rate hike at 6% in Oct and 34% in Dec, compared to 18% and 43% respectively early this month. As such, the iTraxx AxJ IG declined c.4bps to c.132bps led by broad tightening across most of its constituents while USTs also gained overnight as 10y closed 3bps lower at 2.06%.

¨      Chinese real estate led narrowing of IG spreads and HY credits by 1bp and 10bps to 153bps* and 8.98%* respectively.  Chinese developers continue to be biggest gainers as seen in average IG spread of property players tightened c.2bps while its HY counterparts saw yields compression of c.8bps, notably Wanda 18, Franshion 21, China Vanke 19, Evergrande 18-20, Greenland 16-17 and Country Garden 19-23.

¨      Commonwealth Bank of Australia’s (CBA) priced USD2.25bn 3-tranche senior while Axiata Group and China General Nuclear Power (CGNPC) began investor meetings for proposed USD offerings. CBA (Aa2/AA-/AA-) raised USD2.25bn via a 3-tranche issuance comprising USD1.0bn 2.4% Senior 11/20 priced at T+103bps, USD750m 1.75% Senior 11/18 at T+85bps and USD500m Senior FRN 11/18 at 3-month US LIBOR+79bps. In the pipeline, Axiata (Baa2/BBB+/NR) is looking to tap its existing USD1.5bn multi-currency Sukuk programme while CGNPC (A3/A-/A+) looks to issue benchmark USD bonds. Philippine’s bank RCBC issued a USD320m senior at 3.45%, 30bps inside initial guidance.

¨      Weak US’ Sept new home sales with 11.5% MoM decline; attention of US Services PMI and durable goods orders. The new home sales report looks out of sync with recent strong existing home sales and housing starts data as only 468k new residential properties were sold in Sept, representing a 11.5% drop following last month’s and expected Sept sales of 529k and 549k respectively. Later today, market will look out for US’ Oct preliminary Services PMI whereby it is expected to be printed at 55.5 compared to last month’s 55.1. Consensus’ expectation of Sept durable goods orders is for a 1.5% decline following a 2.3% drop in Aug.

*based on RHBFIC internally-generated index.

SGD CREDIT MARKETS

¨      Trikomsel potential default announced; Primaries active on real estate issuances. Trikomsel (NR) announced yesterday that there would be a potential default on its SGD115m TRIOIJ 5/16 and SGD100m TRIOIJ 6/17 papers due to inability to service its coupons due in Nov and Dec this year and will be releasing its restructuring proposal in the next 2-3 weeks. Based on Bloomberg, TRIOIJ 5/16 and TRIOIJ 6/17 prices have fallen to around c.80 to par. Investors could potentially reassess the other Indonesian SGD names in the market such as Ciputra Property in the real estate space, telecommunications (Protelindo), O&G (Medco Energi, Logindo Samudramakmur) and consumer leasing (Astra Sedaya Finance). In the secondary market, yielder names such as LMRTSP, OLAMSP and GENSSP traded 5-15bps tighter (based on Bloomberg). There was a mild bear flattening in the short-to-mid curve, with the 2y rising by 3bps (to 1.73%) while the 5y rose by a lesser 1bp (to 2.27%).

¨      Keppel REIT (NR) printed a SGD150m Pnc5 at 4.98%, inside initial guidance of low 5% while Singaporean-based property developer Oxley Holdings (NR) is printing a SGD 4y at an initial guidance of 5% and Swiss private bank Julius Baer (A3) is planning to print a SGD AT1 Pnc5. Singapore’s Sept Industrial Production numbers came in slightly weaker than expected at -4.8% (consensus: -4.5%; Aug: -7.1%).

MYR CREDIT MARKETS

¨      Credit ended mixed amid strong trading flows. Secondary market were active yesterday with trading activity exceeded MYR1bn, concentrating mainly in mid-to-long tenure. Plantation bonds such as FRL 6/20 and Sime 12/27 tightened 2bps-8bps to 4.472% and 4.831% respectively, despite low CPO prices of MYR2,200/tonne at the moment. Mixed tone in government-guaranteed space as DanaInfra 23-34 and Prasarana 21-26 on combined MYR170m settled in between 4.15%-4.816% (-13bps to +28bps).

¨      MGS curve flattened amid volatile Ringgit. The 10y MGS gained yesterday with yield declined 3bps to 4.10%; although 3y-7y MGS inched 1bps higher to 3.58%-4.05%. Future market is pricing in a low probability of 6% for a rate hike in this coming meeting, while market sees higher chance for interest rate to normalize after 1Q16. Ringgit was rather volatile yesterday, rose to the high of 4.28/USD following interest rate cut by the China’s Central Bank, before recovered to close at 4.22/USD.

¨      Danainfra sets to raise funding for MRT2, via its MYR50bn of Islamic commercial papers and/or Islamic medium-term notes (ICP/MTN). MRT Line 2 construction will start next year with expected completion in 2022. The Line 2 will have a total length of 52.2km and 36 stations with forecasted daily passengers of 529,000.