RHB FIC Credit Market Update - 30/11/15

30 November 2015

Credit Market Update

           

Asian Borrowers Rush to the Market Ahead of FOMC Meeting

APAC USD CREDIT MARKETS                                                    

¨      Asian Ex-Japan (AXJ) USD bond deals reached USD14.5bn in November, marking its second busiest month in 2015 since May’s USD19.1bn as issuers are rushing to price their bonds ahead of Fed meeting in mid-December. Asset manager - China Huarong emerged as the single largest issuer with USD1.8bn bonds, while Bank of East Asia’s (BNKEA) USD650m of AT1 top from the perps space (more from our monthly update piece this week).  

¨      APAC credit markets held steady despite poor Chinese industrial profits and probes on brokerage firms. The iTraxx AxJ IG rose 0.3bps to 130.1bps as Chinese equities plummeted 5.3%-6.1% following China’s weak Oct industrial profit which plunged 4.6% compared to last month’s 0.1% decline and announcement of probes on 2 major Chinese brokerage firms for possible insider trading and leakage of sensitive information. Meanwhile, Treasuries strengthened marginally as a result of the revelations in China with yields slipping 2-3bps across the benchmark curve, 5y and 10y USTs closed at 1.64% and 2.21% respectively.

¨      Corporate credits sideway as IG spreads remained at 144bps* and non-IG yields at 9.06*. Chinese IG and HY credits were generally resilient as ICBCAS Senior 20 and BCHINA LT2 20 tightened by c.2bps while Yuexiu 23 and Franshion 21 widened by c.2bps. Over in the HY space, Greentown 18, Perusahaan Gas 24 and Yancoal 22 led gains but moderated by weakening of Vedanta 16-23, China Hongqiao 17 and Agile Property 17.

¨      US’ Oct pending home sales data today is expected to be improve by 4.5% YoY from last month’s 2.5% gain.

*based on RHBFIC internal indices.

SGD CREDIT MARKETS

¨      More Trikomsel updates this Friday; Active primaries spur secondary flows. The short-to-mid curve flattened, with the 5y falling by 1.8bps (to 2.4%) while the 2y marginally rose by 0.55bps (to 1.85%). Secondary activity picked-up alongside last week’s stronger primary issuances, with KDB 7/18 trading around 20bps wider after last week’s primary print of SGD200m KDB 12/18 at 2.65% while papers such as life insurance company PINGIN, BTHSP and GALVSP saw spreads closing tighter (according to Bloomberg). Trikomsel (NR), the Indonesian mobile handset sales company that announced in mid-Oct that it would potentially default on its two outstanding SGD bonds, will be meeting with bondholders on 4-Dec to provide a status update on its TRIOIJ 5/16 and 6/17 interest payments and restructuring plans.

MYR CREDIT MARKETS

¨      Tightening in short-dated AAA bonds; Axiata’s results boosted by XL’s tower disposal (refer Credit Update). Few names crossed on quiet trading session of MYR343m last Friday. Z-spreads for short-dated AAA bonds ended 2bps-22bps tighter – Kexim 3/18 narrowed 2bps to 4.182% (z-spread: 24.5bps); while Cagamas 11/16 exchanged hands at 3.707% (z-spread: -18bps).

¨      Consolidations in MGS and Ringgit after early week rally. Initial enthusiasm surrounding China’s plans to purchase Malaysia treasury bonds and positive development on 1MDB faded after the rally early of the week. MGS 3y-10y benchmarks ended the day flat to +3bps in between 3.43%-4.23%; while Ringgit retreated to 4.259/USD from the low of 4.215/USD last week.

CREDIT UPDATE

Company/Issuer	Sector	Country	Update	RHB FIC View
Axiata Group Berhad (Axiata) (Baa2/BBB+/NR;  stable)	Telco	MY	3Q15 results show improved gearing post-debt restructuring exercise; regional momentum and one-off gain from XL’s tower sales lifted earnings. EBITDA and PATAMI rose c.11% and 40% YoY respectively due to better regional performance and one-off gain from XL’s tower sales. Recent restructuring of USD debt to LCY has yielded in improved gearing, debt/EBITDA and debt/equity of 1.9x and 0.5x from 2x and 0.6x in FY14 respectively. Liquidity remains robust albeit deteriorating slightly as cash/short term debt coverage was at 2.3x from 2.6x a year ago while capex/revenue rose to 24% from 20%.	Marketweight on credit. We are encouraged by Axiata’s recent debt structuring exercises which has resulted in improved gearing, lower debt levels by 3% QoQ and reduction of unhedged USD debt, whereby as at Oct 15, its exposure as a percentage of total USD debt dropped to 24% from 50% in 2Q15. However, we are cautious of the aggressive capex as it enhances its 3G/LTE network.