June Rate Hike Expectation to Weigh on Credit Markets; Active Primaries as APAC USD Bond Sales Reached USD10.7bn

30 May 2016

Credit Markets Weekly

June Rate Hike Expectation to Weigh on Credit Markets; Active Primaries as APAC USD Bond Sales Reached USD10.7bn                                            

APAC USD CREDIT MARKETS

¨      Investors to Stay Cautious; Hawkish Yellen may weigh on Asian credit markets. USTs weakened as benchmark yields rose across the curve by 1-3bps WoW following Fed Chair Yellen’s hawkish speech and the positive US economic data such as Apr new home sales and Durable goods orders. Looking ahead, investors will be focused on the key NFP, ISM and inflation data, alongside the release of the Fed’s beige Book. Asian credit markets were relatively stable, as iTraxx AxJ narrowed 4.5bps WoW to c.141bps while average HY bonds yields tightened 2bps to 7.14% though, IG credit spreads were marginally wider by 0.6bps to settle at 210.2bps.

¨      APAC USD bond sales hit c.USD10.7bn as issuers rush to the markets ahead of expectations of a June rate hike, bringing the YTD issuances to c.USD90.8bn. 70% of the amount raised were FI names such as China Development Bank (Aa3/AA-/NR)’s USD1.6bn dual tranche issuance, China Huarong Asset Management (Aa2/AA-/AA-)’s USD2.5bn 3-part deal and ICBC (A2/A/A)’s USD600m 5y bond deal, alongside, China’s state-owned power company, China Three Gorges Corp (Aa3/A/A+)’s USD1.5bn two tranche sale.

¨      Moody’s cut Greenland Holding and Greenland Hong Kong’s rating to Ba1 and Ba2 with a negative outlook to reflect deteriorating credit metrics and high leverage position as debt/capitalization ratio surged to 78.5%. Elsewhere, Agile Property rating was confirmed by Moody’s at Ba3/Negative following the successful refinancing of debt maturing in 2016, which improves its liquidity position. Similarly, S&P affirmed Kerry Properties at BBB- with a negative outlook on soaring debt levels, due to the company’s large capex requirement in the medium term amid the subdued Hong Kong residential market with debt/EBITDA rising to 7.4x in FY15 from 5.1x in FY14.

¨      Fitch slashed Beijing Automotive Group to BBB+/Stable from A-, as its FFO-adjusted-net-leverage spiked up to 3.3x in FY15 from 1.7x in the previous year. Additionally, Fitch revised China Shenhua’s rating outlook to negative from stable after affirming it at A+ due to lower profitability and weaker credit metrics as its FFO-adjusted-net-leverage climbed to 1.2x by end-2015 from 0.9x in the previous year.

SGD CREDIT MARKETS

¨      Inaugural issuers tap primaries; Eu Yan Sang seeks early redemption. Weekly issuances came in at SGD330m, with YTD issuances around SGD11.4bn, just 2.5% higher if compared to a similar period last year. The week saw inaugural prints from yielder names, with United Engineers Ltd (NR) printing a SGD150m 5y at 3.68%, 12bps inside initial guidance, while Valuemax Group (NR), a Singapore pawnshop chain, issued a mini SGD50m 2y at 5.5%. BPCE SA (A2/A/A) also printed a SGD130m B3T2 10nc5 at 4.50%, which spurred attention into other B3T2 papers such as BNP, STANLN and ABNANV. Interest was also observed in quasi/ high quality names like HDBSP, JTCSP and CAPITA. Eu Yan Sang International (NR) is seeking consent for an early redemption of its outstanding bonds (EYSAN 11/16 and 6/18) due to its equity privatization exercise. Meanwhile, Sembcorp Industries and its subsidiary Sembcorp Marine announced that they were being sued by EIG Management with regards to the Sete Brasil bankruptcy situation. 

¨      SOR curve bear steepened. There was a bear steepening in the short-to-mid SOR curve, with the 2y and 5y rising 3.5bps to 1.17% and 5.3bps to 2.06% respectively. Looking ahead, investors will be eyeing the China official and Caixin May PMI (1-June) as well as Singapore May PMI (2-June).

MYR CREDIT MARKETS

¨      MGS curve moved upward with the 3y settled at 3.24% (+1bps), 5y rose 5bps to 3.44%, while 10y realigned to the new benchmark at 3.90%. USDMYR closing near to previous week level at 4.08, after four week of decline, as Brent edged higher to c.USD49/bbl on lower US production and inventory data. In light of the better oil sentiment, Malaysia CDS tighthen by 4bps to 157bps. We expect the new MYR4bn 5.5y MGS 11/21 to be auctioned today to attract the good demand given the favorable tenure where the WI was seen quoting at 3.59/57%.

¨      Corporate market remained active above MYR3bn amid quiet primary issuance. Investors’ interest were concentrated in financial, government-related entities, and infrastructure sector such as Cagamas, SEB, and Prasarana/Danainfra. Meanwhile, Dar Al Arkan was downgraded to A1/Negative, from AA3/Negative by RAM due to its deteriorating leverage metrics. Primary markets were slow with only MYR205m printed during the week, compared to MYR2bn in the previous week.