More Issuance from Chinese Credits in USD before FOMC Meeting; Slower Primary in SGD; GGs Dominate MYR Market

13 June 2016

Credit Markets Weekly

More Issuance from Chinese Credits in USD before FOMC Meeting; Slower Primary in SGD; GGs Dominate MYR Market                                            

APAC USD CREDIT MARKETS

¨      Mixed Asian credit markets as CDS was flat at 141.5bps while IG spreads rose 4bps to 215.4bps whereas yields of junk bonds declined 14bps to 6.86%. Meanwhile, Treasuries strengthened as benchmark yields declined 4-7bps WoW with 5y and 10y at 1.17% and 1.64% respectively on the back of strong reception towards UST auctions and the weaker equities market.

¨      Beijing Energy was downgraded to A3 from A2 by Moody’s with a negative outlook on concerns regarding the higher business and financial risk arising from its merger with Beijing Jingmei Group which is exposed to the coal mining, real estate and trading sectors. Elsewhere, Texhong Textile was upgraded to BB from BB- by S&P with a stable outlook as growth prospects and margins are expected to improve in the next 12-24 months which will offset the effect of the consolidation of its Xinjiang yam production entity.

¨      Total deals priced more than doubled from the previous week to USD5.6bn (last week: USD2.0bn) led by Chinese issuances such as China State Construction (Baa2/BBB/BBB+)’s USD1.0bn 2-tranche 3y and 5y at T+142.5bps and +152.5bps respectively, or 20bps tigher than IPT, CITIC Ltd (A3/A-/NR)’s 2-tranche seniors via USD500m 5.5y and USD750m 10y at T+155bps and +200bps respectively, 25bps tigher than initial price guidance while ICBC (A1/A/NR) priced USD400m 5y senior at T+140bps; IPT+160bps. Elsewhere, ANZ (Aa2/AA-/AA-) raised USD1.0bn AT1 Pnc10 (Baa1/BBB-/BBB) at 6.75%; IPT:7.25%.

SGD CREDIT MARKETS

¨      Interest in high grades names as benchmark swap curve declines. Last week’s issuances slowed by 65% WoW to SGD313m, with YTD issuances at SGD12.6bn, around 7% higher compared to a similar period last year. We saw two prints from unrated property players, with City Developments (NR) printing a SGD150m 10y at 3.48% while Chip Eng Seng Corp printed a SGD120m 5y at 4.75%, with private banking clients comprising close to 60% of total demand for CHIPEN 6/21. Interest was seen in safer papers such as quasi (HDBSP) and high grade names (CAPITA, CITSP) while pickings were also observed in yielder names such as EZISP and NOLSP even as Brent oil prices comfortably hovered over the USD50/bbl handle last week. Looking ahead this week, investors may stay at the sidelines ahead of the June FOMC meeting this Thursday, though the general consensus is for the FOMC to keep rates unchanged in this meeting. Meanwhile, Capitaland Commercial Trust’s outlook was revised to A3/Neg (from A3/Sta) by Moody’s due to an expected increase in leverage to fund the acquisition of CapitaGreen, a Grade A office tower in Singapore. Meanwhile, Starhill Global REIT negotiated a 5.5% increase in base rent with its Ngee Ann City master tenant, its largest tenant at 19.7% of total gross rent. 

¨      Fall in SOR post-weak NFP. There was a bull flattening in the short-to-mid swap curve, with the 2y falling by 12bps to 1.61% while the 5y declined 18.5bps to 1.92% after the very weak NFP print (actual: 38k; consensus: 160k) in the earlier week spurred renewed Fed hike dovish expectations, which has seen the SGD strengthen against the USD by around 1.2% WoW to close at 1.360. Looking ahead, key data releases include Singapore Apr Retail Sales (15-June) and May NODX (17-June).

MYR CREDIT MARKETS

¨      Govvies ended firmer as MYR strengthened 1.8% WoW to 4.0718/USD. MGS curve shifted downward with the 3y at 3.20% (-5bps), 5y at 3.48% (-10bps), 7y at 3.74% (-9bps) and 10y at 3.87% (-7bps). This week key macro data is the CPI for May, where concensus is expecting inflation to ease to 2.0%, from 2.1% in Apr.

¨      PDS market moved sideways on moderate trading flows of MYR2.1bn. Financial names were among the top traded – Maybank B3T2 5/24c19 closing at 4.48% (+0.3bps) while MBSB 10/17 fell 0.1bps to 4.29%. Elsewhere, Gamuda 10/18 decreased 2bps to 4.37% on MYR81m trades during the week.

¨      Over in the primary market, PASB (GG) priced MYR1.45bn IMTN to refinance its MYR1.4bn maturity on 17-Jun. More government guaranteed bonds in the pipeline with Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA) potentially tapping the market after the investors’ briefing last Friday, with target issuance of MYR8-10bn per annum across the 3-30y tenure.