Post-Brexit Rally for Asian Credits; S&P’s Downgrades Beijing Capital Group to BBB-/Neg

28 June 2016

Credit Markets Update

Post-Brexit Rally for Asian Credits; S&P’s Downgrades Beijing Capital Group to BBB-/Neg

¨      APAC USD Credit Market: Investors turned to Asian credits markets amid the Brexit volatility as IG credits spreads declined 5.2bps to 227.1bps while average HY bond yields tightened 1.3bp to 6.91%. The iTraxx AxJ spiked 5.7bps to 150.5bps after CDS of Indian banks and corporates such as Bank of India, ICICI Bank, State Bank of India and Reliance Industries swelled 10-27bps. Elsewhere, investors continued to rush into safe haven assets amid the Brexit commotion as benchmark USTs’ tightened 3-14bps with the 10y and 30y closing at lows of c.1.44% and c.2.26% respectively. On ratings, S&P’s slashed Beijing Capital Group to BBB- from BBB with a negative outlook, driven by its elevated leverage position with debt/EBITDA ratio rising to 16.5x at end-15 from 13.5x a year earlier, largely owed to its aggressive debt-funded expansion.

¨      SGD Credit Market: Ausgroup to meet bondholders on technical default. There was a bull steepening in the short-to-mid curve, with the 2y falling by 11bps to 1.38% while the 5y declined 10bps to 1.69% post Brexit results which has seen the SGD depreciate by around 1.90% against the USD. Interest appeared in property names like FCLSP and AREIT as well as HYFSP and EZISP, with spreads appearing tighter (according to Bloomberg). Ausgroup (NR), which technically defaulted on its sole outstanding SGD110m AUSGSP 10/16 last month, has announced a meeting with bondholders on 18-July.

¨      MYR Credit Market: Heavy flows of MYR1bn in the corporate market. Prasarana was the most active on combined MYR325m trades where tranches 3/20-2/36 increased 1-3bps to 3.85%-4.77%. Other notable transactions were Public Bank 4/19 which fell 3bps to 3.996%, while Aman 5/19 decreased 8bps to 3.969%. Meanwhile, Tadamun Services (AAA), the SPV for Islamic Development Bank, issued MYR350m 8y Sukuk at 4.36%. Local govvies recovered from Brexit shock as we note buying interest from foreign players, according to our channel-check. Interest was seen particularly on the belly-to-long-end of the curve as the 5y, 7y and 10y MGS and GII benchmarks slipped 3-5bps at close. Elsewhere, BNM to auction the reopening of MYR2.5bn 30y MGS 3/46 tomorrow. The WI was seen quoting at 4.79/60% yesterday. MYR stayed around the 4.09/USD level, after depreciating 1.8% last Friday.