IG Spreads Widened as BoJ Pause Easing; Chinese Developers Rating Under Pressure

3 May 2016

Credit Markets Weekly

IG Spreads Widened as BoJ Pause Easing; Chinese Developers Rating Under Pressure

                                                                       

APAC USD CREDIT MARKETS

¨      Credit markets weakened as Bank of Japan disappointed by holding off on additional stimulus. CDS and IG spreads widened by c.3bps to 140.9bps and 212.4bps respectively although HY ended 15bps lower at 7.22%. Meanwhile, UST yields edged marginally lower by 2-4bps with the 5y and 10y at 1.36% and 1.87% respectively supported by the Fed’s decision to leave interest rates unchanged while reiterating on gradual hike in future from slower pace of economic growth. 

¨      USD6.0bn deals priced vs. USD8.3bn in the prior week, with Sinopec’s (Aa3/A+/NR) mega USD3.0bn 4-tranche issuance amounting to half the total APAC USD issuance amount. Huawei (NR), via Proven Honour, raised USD2.0bn 10y at T+230bps, or 10bps inside IPT.

¨      Chinese HY property developers face rating pressure as Fitch slashed Evergrande and Jiangrui to B+/Neg and B-/Neg respectively while S&P downgrades Greenland to BB-/Neg due to its high debt levels, expected tight liquidity and cash flows ahead of potential headwinds in the Chinese real estate market.

SGD CREDIT MARKETS

¨      Sete Brasil continue to weigh on Sembcorp and Keppel; quiet week from primary. Issuances came in at SGD110m, with YTD issuances of SGD7.5bn, c.10% higher if compared to a similar period last year. Cambridge Industrial Trust (Baa3/NR/NR) came to the market with a SGD50m 7y at 3.95% while Qatar National Bank (Aa3/A+/AA-) printed a senior SGD60m 2y at 2.50%. On secondary, improving commodity prices spurred interest into HY names such as BTHSP, KRISSP, OLAMSP. Sembcorp Marine’s 1Q2016 net profit fell by 49% to SGD55.6m mainly due to fewer rig building projects while pursuing legal action against Sete Brasil which it has an outstanding orderbook of SGD3.2bn (30% of total orderbook). Keppel Corp reiterated to investors that the SGD230m impairment provisioning in 4Q15 for Sete Brasil projects was sufficient (Keppel has a remaining SGD4bn orderbook with Sete, or 45% of its total O&M orderbook). Meanwhile, G8 Education Ltd announced a consent solicitation exercise to allow for the early redemption of its SGD260m GEMAU 5/17.

¨      SOR steepened. The short-to-mid SOR curve steepened, with the 2y declining by 2.3bps to 1.63% while the 5y fell by a lesser 0.8bps to 2.02%. Looking ahead, investors will be eyeing the Singapore Apr PMI (3-May).

MYR CREDIT MARKETS

¨      MGS fell as the market was on a cautious tone amid the FOMC and BoJ meeting last week. Benchmark 3y-10y rose 1-11bps WoW with the 5y and 10y closing at 3.50% (+11bps) and 3.88% (+9bps) respectively; along with a 0.2% weakening of the USDMYR to 3.9045 despite firmer oil prices. In the corporate market, MEX II (AA-) issued MYR1.45bn Senior/Junior Sukuk ranging 5y-19y at 5.10%-6.50%; while Perdana Petroleum (AAA-fg) printed MYR635m 1y-5y at 4.30%-4.90%, which brings YTD issuance to MYR29.1bn, or 50% higher than 2015YTD. Secondary flows stayed at c.MYR2.9bn with the GREs such as Cagamas, Danga and Prasarana are among the most active. Elsewhere, newly issued Gamuda 4/21 was seen exchanging hands at 4.60% on combined MYR150m trades. On the rating, RAM revised Country Garden’s outlook to AA3/Neg due to the unexpected spike of its debt level to fund its land purchases.