: RHB FIC Credit Market Update - 12/11/15

12 November 2015

Credit Market Update

           

Risk Appetite Kept in Check on Mediocre Chinese Economic Data

APAC USD CREDIT MARKETS                                                    

¨      Credits markets stayed mixed on lackluster Chinese data. The iTraxx AxJ IG was a tad lower at c.126.2bps amid the advance of Chinese equities market despite mixed economic data reports such as the subdued Chinese Oct industrial production at 5.6% (consensus: 5.8%; prior: 5.7%), Oct retail sales came in stronger at 11.0% (consensus: 10.9%), while fixed assets investment growth was in-line with consensus at 10.2%. We opine that further weakness in Chinese economic data may push the PBoC for further fresh stimulus measures. Separately, the US markets were closed yesterday for Veterans Day. On the commodities front, Brent oil prices stumbled yet again, declining 3.4% to USD45.8/bbl on fresh supply concerns from Iraq and on US crude stockpiles.

¨      Corporate credits spreads was slightly tighter by 1bp to 143bps* as we observe a general spread compression of all the credits under our coverage. HY credits slipped up as yields rose 5bps to 9.01%*. Yields of commodities related credits like Vedanta 16-23 and Yingde Gases 18 widened 10-30bps, despite the latter’s BB rating affirmation by Fitch the day earlier. Similarly, Golden Eagle 23 yields equally suffered after it was placed on ‘Credit Watch Negative’ by S&P. The exception was MIEHOL 19 which rallied 13bps after the announcement of a JV with Long Run Exploration Ltd in Canada.  

¨      Primaries heat up with deals from Beijing Properties, China Huarong Asset Management and China State Construction. Beijing Properties (NR) may price its USD 3y bond today IPT around the low 6%. China Huarong (A3/A-/A) will sell its USD benchmark 3y, 5y and 7y bonds. While, China State Construction (A2/A/A) is looking to price its USD 5Y bond today with an IPT of T+175bps.

*based on RHBFIC internal indices.

SGD CREDIT MARKETS

¨      SOR retracement. SOR narrowed c.3bps across the curve yesterday with the 2y and 5y closing at 1.945% and 2.575% respectively, recovering slightly from Friday’s strong jobs data.

¨      Mixed secondary flows; Julius Baer SGD450m Pnc5 priced at 5.9%; ST Telemedia markets SGD2bn MTN. Secondary markets saw had two-way flows motivated by earnings. STSP 4/20 Z-spread inched 1bps tighter to 7.9bps after 2Q revenues was mostly stable at SGD4.2bn, while DBSSP Pc6/18 Tier-1 tightened 1.8bps to Z-spread of 149bps. On the flipside, MIOAU 12/16’s Z-spread added 4bps to 615bps after the company sold USD150m 3NC2 bonds at 8.75%, and CHEUNG Pc9/16 continued to widen in Z-spread by 6.8bps to 355bps. In the primary space, Julius Baer Group priced its SGD450m Pnc5 AT1 at 5.9% (IPT 6.375%), while ST Telemedia will begin its roadshows on 13-Nov for a SGD2bn MTN programme.

¨      Wilmar International credit profile intact despite weaker results. WILSP 17-19 came under pressure after 3Q revenue fell 7.6% YoY to USD10.6bn dragging EBITDA lower by 19% YoY to USD576.8m caused by lower crude palm oil prices and weaker margins from refining and downstream businesses. Its credit profile improved slightly with debt/EBITDA of 10.1x (Dec-14: 10.6x), net gearing of 0.74x (Dec-14: 0.78x), and cash, bank and structured deposits, marketable securities, receivables and inventories of USD15.7bn versus ST debts of USD15.1bn. Additionally, the Group has committed undrawn credit facilities of USD2.3bn out of total unused credit facilities of USD16.3bn. Margins may see further pressure as CPO prices may be under pressure in the near-term as Malaysian palm oil inventories rose 7.29% to a record high of 2.83m tonnes in Oct.

MYR CREDIT MARKETS

¨      Mixed tone in credit market; Petronas’ 3Q15 NP plunged 91% y-o-y on low oil prices (refer Credit Update below). Secondary flows breached MYR660m yesterday. Cagamas 12/18 was the most active with MYR315m transacted, closing the day on wider z-spread of 13bps at 4.181%. Elsewhere, z-spreads for government sovereign fund, Khazanah 10/17 and 7/18 tightened 13bps-18bps, compared to the previous trades in 2014.

¨      On the primary front, Ampang Point Shopping Centre’s asset backed security, Purple Boulevard Bhd priced MYR450m Class A-Subordinated E (AAA – NR) at 5.15%-15.0% for expected maturity of 5y-7y.

¨      Higher MGS yields provide bargain hunting opportunities. Sovereign market was quiet yesterday following the hike in govvies yields in the earlier trading session. Bargain hunters supported the market as yields for 5y-7y fell 3bps-5bps to 3.77%-4.18%, after increase by 13bps-15bps on Monday as Fed’s Dec lift off emerges. Focus for today will be the 10y-MGS reopening where the When Issued (WI) was seen quoting at 4.26%/4.23%, slightly lower than the closing of 4.28% in the cash market yesterday. The Ringgit has also stabilized at around 4.35-4.37/USD this morning, after depreciating 1.4% on Monday. Looking ahead, the frail Petronas’ 3Q15 numbers could exert pressure on the Ringgit as Petronas slashes 2016 dividend payment to government by 38.5% to MYR16bn (FY15: MYR26bn).

CREDIT UPDATE

Company/Issuer	Sector	Country	Update	RHB FIC View
Petroliam Nasional Bhd (Petronas) A1/A-/A; Sta	O&G	MY	Weaker earnings result on low oil price and subdued demand environments. 3Q15 revenue decreased by 25% y-o-y to  MYR60.1bn owing to lower realized oil prices and trading volume for petroleum product, crude oil and condensate. This was partly mitigated by the favorable movement currency rate (USD/MYR).	Marketweight. The weaker earnings are expected due to pressure from slump in oil prices. Although the trend is likely to continue at least in the near term, we do not see any material impact on Petronas’ credit profile due to its (1) stable gearing level with annualized debt-to-EBITDA of 0.84x; and (2) strong liquidity with cash ratio of 1.76x, as at Sept-15.