Credit Market Watch: Summary for week ending 29-Apr

Credit Market Watch: Summary for week ending 29-Apr

·         MYR Credit:

Ø  An ultra-low probability black swan event occurred over the long weekend, in sports, as Leicester City was crowned EPL champions.

Ø  MGS softened 5-10bps WoW amid negative domestic headlines, but ended the week on a slightly more constructive tone following the internal appointment of the new BNM governor. MYR PDS yields largely moved range-bound +/-1bp.

Ø  Banking stats in March: Industry loan growth slowed to 6.4% YoY (Feb: 7.4% YoY) while deposits growth turned negative for the first time since GFC slipping 0.9% YoY (Feb: +0.7% YoY). Loan/deposit ratio improved to 87.7% from 88.0% at end-Feb despite the reduction in deposits and this would require additional details for drivers behind the drop in LDR. Industry's gross NPL remained steady at 1.6%.

Ø  Country Garden (AA3/negative): RAM cut the outlook to negative, having just assigned the stable outlook 4 months earlier in Dec 2015. The outlook change was based on a surprise increase in Country Garden Holdings' borrowings in 2H15 due to land acquisitions which deteriorated financial metrics and are unlikely to recover much in the short term amid weaker profitability. Furthermore, the management's risk appetite remains high with committed land purchases which deviated from its earlier guidance. Country Garden Holdings' net DE jumped to 0.92x (1H15: 0.72x) with RMB109b total debt (+70% YoY), inclusive of perpetual securities, and 0.24x OCFDC fell short of an expected 0.3x. RAM wants to see a minimum 0.3x OCFDC and net DE improving to 0.7x or below to revert the outlook to stable.

Ø  CIMB Group: CIMB Niaga posted weak 1Q16 results, though not surprising, was lower than our equity analyst's expectations due to higher loan provisions. Asset quality continued to weaken as NPL ratio rose to 3.90% end Mar 2016 (2015: 3.74%) and special mention loans spiked to 10.4% (2015: 8.16%), some of which are pending restructuring. The Indonesian unit also posted a 3% YoY contraction in loans due to softer loan demand. As CIMB Niaga is estimated to contribute 10-15% of CIMB Group's net profit, this would weigh on the group's performance and credit fundamentals.

Ø  Relative value: Perdana Petroleum papers, which are guaranteed by Danajamin, offer decent yield pick-up due to its FG status. The 2018, 2019, 2020 and 2021 papers last traded at 4.46%, 4.60%, 4.75% and 4.90% respectively, 17-50bps above our fitted AAA line. Comparatively, bank-guaranteed EKVE 32 with longer duration last traded at 5.15%.

·         Asian USD Credit:

Ø  UST curve shifted 4-6bps lower along the 2y10y WoW. Asian credit spreads movements was mixed, with JACI composite -2bps, JACI IG +2bps and JACI HY -9bps WoW.

Ø  Sovereigns turned weaker, led by INDONs and PHILIPs as the former edged 2-3bps higher and the latter rose 5-15bps higher in yields WoW. KOREA and MALAYS, on the other hand, traded 2-5bps firmer WoW. OGIMK 2023, the USD3b 1MDB USD bonds, weakened to 6.46% or up ~58bps in yield WoW.

Ø  Rating changes: Tencent's rating was revised to A/positive from A/stable by S&P, citing good revenue and profitability growth prospect on progress in monetisation of user traffic and strong operating cashflows generation. Gemdale Corp was downgraded to Ba2 from Ba1 by Moody's, citing weakened credit metrics more in line with Ba2 position despite the agency's expectation of some improvements in the next 12-18 months e.g. revenue/adjusted debt weakened to 79% in 2015 vs 107% in 2014 and EBIT/interest cover declined to 2.7x in 2015 from vs 4.0x in 2014. The ratings of Greenland Holding and its Hong Kong subs were lowered by both Moody's and S&P due to high leverage and weakened credit metrics, while S&P has additionally cited weakened probability of extraordinary support from the government.

·         CDS: EM Asia 5y CDS spreads widened led by Malaysia and Philippines each +10bps, China +8bps while Korea and Thailand each +2bps WoW.