Credit Market Watch: Summary for week ending 11-Mar

Credit Market Watch: Summary for week ending 11-Mar

·         MYR Credit:

Ø  On MPC outcome, OPR was maintained and no cut in SRR. MGS yields ended the week mixed with the 5y +3bps, 10y -1bp and 15y unchanged WoW. PDS market was lacklustre with volume totalling MYR2.3b for the week, though spreads did compress pre-MPC at the belly of the AAA and GG curves.

Ø  Plantation: KLK had a firm start to its FY9/16 with strong 1Q results and financial metrics largely held steady, in line with our stable outlook. FRL’s continued to show healthy credit metrics for the full-year 2015. We maintain a stable outlook, but think cash buildup warrants close attention this year ahead of the MYR1.0b repayment in 2017. BAL posted a 32% YoY decline in normalized FY15 pre-tax profit, but cash flow generation remained resilient. Our main concern on BAL is still leverage as gearing of 0.73x end-2015 is at the high end among peers. TSH posted poor results in FY15 and significantly weaker cash flow which hardly covered debt. GAR announced net losses for FY15 and EBITDA fell by 5% YoY as stronger downstream results was insufficient to stem the decline due to depressed CPO prices. We still opine that TSH’s rating should be in the A band and reiterate our negative outlook on both TSH and GAR.

Ø  Relative value: 7y-10y quasis seem to have value as this part of the curve has not compressed as much. WCT 18, which last traded 6bps above our fitted line may offer some value, if its de-gearing exercises are successfully executed.

·         Asian USD Credit:

Ø  JACI composite was -12bps, JACI IG -10bps and JACI HY -21bps WoW.

Ø  Rating actions: Standard Chartered’s rating was downgraded by Moody’s to A1 from Aa3 after the group posted losses in 3Q15 and expectations of continued weak profitability amid more challenging conditions in some of its markets. In line with this, ratings/outlooks of several of the bank’s branches were downgraded/cut to negative. Vedanta Resources corporate family rating was downgraded to B2/negative from Ba2 by Moody’s, citing low commodity prices limiting earnings improvement and slower-than-expected improvement in leverage metrics.

·         CDS: EM Asia CDS spreads narrowed across the countries that we monitor, with China -9bps, Indonesia -17bps, Thailand -13bps and Malaysia -10bps WoW.