Credit Market Watch: Summary for week ending 15-Apr

Credit Market Watch: Summary for week ending 15-Apr

·         MYR Credit:

Ø  MGS started the week soft as OPEC failed to agree on output freeze in Doha. Brent crude price plunged, Ringgit weakened to 3.94/95 as we write and MGS bids shifted 2-3bps higher along the 3y10y.

Ø  PLUS: Rating was reaffirmed at AAA/stable. For 9M2015, all of its highways registered growth in traffic volume and remained in line with projections, except for Butterworth-Kulim Expressway. Debt service coverage remains strong with forecasted minimum and average FSCRs of 2.79x and 7.36x respectively (previously: 2.40x; 7.21x).  While PLUS is vulnerable to traffic underperformance, the probability of weak traffic is low given the maturity and strategic positioning of the highways.  PLUS still awaits the government's decision on 2016 toll rate increases which include higher multiplier for lorries/trucks.

Ø  Relative value: TNB Northern, which has a direct rolling guarantee from TNB (AAA/stable), offers some value as its last traded 26s last traded 8bps above our AAA fitted line.

·         Asian USD Credit:

Ø  UST curve shifted 4-6bps higher along the 2y10y WoW. Asian credit spreads grinded tighter, with JACI composite -9bps, JACI IG -7bps and JACI HY -20bps WoW.

Ø  China posted 1Q16 GDP growth of 6.7% YoY (4Q15: 6.8%) which is within the official target of 6.5-7.0% on the back of pickup in fixed asset investments (1Q16: +10.7% YoY vs 4Q15: +8.9%) as home sales recovered strongly and fiscal spending increased. But the concern remains that growth may have been propped up at the expense of higher leverage as evidenced from the divergence between total social financing growth (trending up) and real GDP growth (slowing down).

Ø  China new-home prices in March showed broader gains as 62 out of the 70 cities tracked by the NBSC saw MoM increase with acceleration of growth rate in tier-1 cities.

Ø  Sovereign performance was mixed. INDON was the outperformer tightening 10-20bps, PHILIP marginally better but MALAYS and KOREA were 3-5bps weaker WoW. The Malaysia USD sukuk offering may be be priced early this week after the completion of investor meetings.

Ø  Rating changes: AEON Credit Service (Asia) Co's rating was downgraded by S&P to BBB from BBB+, citing its parent group faces heightened economic risk arising from expansion in in developing markets with higher economic imbalances, weaker private sector debt servicing capacity and rule of law than Japan. China Railway Group (CRG)'s rating was upgraded by Fitch to A- from BBB+ as a result of the agency's reassessment of CRG's strategic importance to the Chinese sovereign.

·         CDS: EM Asia 5y CDS spreads was overall tighter with Indonesia, Malaysia, Philippines and Thailand each moved -7bps lower WoW.