Market Cautious Before FOMC; DanaInfra Kick-Starts Funding for MRT2

25 April 2016

Credit Markets Weekly

Market Cautious Before FOMC; DanaInfra Kick-Starts Funding for MRT2

                                                                       

APAC USD CREDIT MARKETS

¨      Credit markets ended cautiously ahead of FOMC meeting this week. CDS inched 2bps lower to 138bps as ECB kept the policy rate unchanged but remained open to further cuts in the future. IG spreads narrowed 5bps to 208.8 while HY widened 3bps to 7.35% as investors were busy with a flood of new deals during the week. Primary issuances hit USD8.3bn vs USD2.9bn a week before, led by China Exim’s USD1.25bn of 5y at +85, JD.com’s USD1.0bn (of USD500m each) on 5y and 10y at +190 and +220 respectively. Elsewhere, Hong Kong Electric (--/A-/--) printed USD750m of 10y at +112.5, BOC Aviation (--/A-/A-) priced USD750m of 10y at +215bps. Maybank hit the market with subdebt of 10.5nc5.5 at +255, or 25bps inside IPT for USD500m, after the successful issuance of Malaysia Global Sukuk in the middle of the week. 

¨      S&P warned that the credit profile of Indian government-owned companies to deteriorate in the long run from higher capex spending and rising leverage, at the same time cautioning that China’s State-Owned Enterprises (SOEs) are likely to suffer more defaults as the government shows its readiness to shut companies in industries with overcapacity.

SGD CREDIT MARKETS

¨      Primary prints rose led by HDB; O&M results continue to look weak. Issuances rose to SGD1.31bn last week led by a 5y SGD675m print from Housing Development Board (Aaa/NR/NR) at 1.75%. YTD issuances are around SGD7.1bn, 17% higher than a similar period last year. There was a better risk-on sentiment as Brent oil prices comfortably hovered over the USD40/bbl threshold, closing at USD45.1/bbl. This spurred interest into commodity names like NOLSP, KRISSP, SCISP and OLAMSP. Interest was also ignited in property names like CAPITA, FCLSP and SGREIT after the real-estate oriented primary prints. 1Q16 results from some O&M players such as Keppel Corp (NR) and Ezra (NR) were unsurprisingly disappointing, though Keppel’s results were partially mitigated by its diversified revenue base as its property segment rose 66% to SGD503m (partially offsetting its O&G segment which fell 58% to SGD818m). Ezra avoided a technical default after it received consent to loosen its EBITDA interest coverage again, this time waiving the requirement as long as monies are deposited into an interest service reserve account. Guocoland’s 3QFY6/16 results came in weaker as net profit dipped by 75% YoY to SGD12.7m, though largely due to the one-off sale in the Shanghai Guoson Centre recognized in 3QFY6/15.

¨      SOR widened; Disappointing NODX as investors eye March IP. The short-to-mid SOR widened by around 3-5bps, with the 2y and 5y closing at 1.65% and 2.0% respectively. Meanwhile, Singapore’s March NODX came in significantly lower than expected at -15.6% (consensus: -12.3%), the steepest decline in 3 years. Looking ahead, investors will be eyeing the SG March Industrial Production numbers (26-Apr).

MYR CREDIT MARKETS

¨      MGS curve shifted upwards with the 3y-10y benchmarks rising 2-3bps to 3.27%-3.79% in line with the rising UST. USDMYR strengthened in the early part of the week before closing flat at 3.90, in line with the movement in oil prices. Malaysia’s foreign reserves continued its upward trend to USD97.2bn as at 15-Apr which covers 8.1 months of retained imports and 1.1 times of short term external debt. The 7y MGS reopening auction this week will take direction from the 2 central banks meeting (FOMC and BoJ), while watching for potential updates on the succession of BNM governor with Tan Sri Zeti set to step down by month-end.

¨      DanaInfra (GG) led the primary market with an issuance of MYR4.5bn, where MYR2bn was privately placed, to fund the construction of MRT2 after a series of contracts were awarded in end-Mar. Sarawak Energy (AA1) , Kuala Lumpur Kepong (AA1), and Gamuda (AA3) have also tapped the market, boosting the total issuance this week to MYR7.1bn. Meanwhile, UEM Sunrise and and CIMB Group may tap the market after establishing a new MYR2bn ICP/IMTN Programme (AA-) and Basel 3-complaint Additional Tier-1 Programme (A1) respectively. Investors were active in the secondary market with MYR2.9bn exchanging hands, notably in Cagamas complex and banks’ LT2. Cagamas ‘16s-25 settling -25bps to +24bps to 3.400-4.352%; while Maybank LT2 8/21c16 fell 10bps to 3.857%.