Monday, July 25, 2016

Credit Market Watch: Summary for week ending 22-Jul

Credit Market Watch: Summary for week ending 22-Jul
·         MYR Credit:
Ø  MGS market softened mid-week as MYR weakened against the USD, with yields higher by 4-8bps WoW. PDS yields largely moved in line, up by 1-9bps WoW.
Ø  New issue: PTPTN raised MYR3.5b through multi-tranche GG bonds with tenors from 7 years up to 25 years. Later the week Jambatan Kedua tapped MYR2.6b in a similar multi-tranche GG issuance although yields were priced marginally higher due to the change in market condition.
Ø  Econs update: 1) Index of leading economic indicators contracted for the 7th consecutive month on YoY basis -0.8% in May, pointing to further slowdown in 2Q16 GDP growth, but the rate of decline improved from -2.7% YoY in April, perhaps a teething sign of stabilisation. 2) Headline inflation eased to 1.6% YoY in June (May: 2.0%). Our economic research revised down 2016 inflation forecast to 2.3-2.8% from 2.8-3.0%.
Ø  UMW Holdings: Rating was downgraded by 2 notches to AA2/stable from AAA/negative by RAM, citing weakened credit profile with profitability likely to remain weak and debt level to stay high for 1-2 years as business headwinds continue and UMW is anticipated to spend MYR2.5b on new plants. Its automotive segment is challenged by narrowing margins and market share loss while the O&G segment plunged into the red on low rig utilization, low charter rates and impairment charges. Profitability deteriorated with overall EBITDA down by 46% YoY and FFO down 38% YoY in FY15. Total debt ballooned to MYR6.01b end-2015, FFODC weakened to 0.17x from 0.38x in FY14 and gearing rose to 0.65x from 0.45x in FY14.
Ø  Relative value: UEM Sunrise 22 offered some value last traded 4.69%, which is 8bps wide from our fitted line and 22bps higher than where IJM Corp 22 was last dealt.
·         Asian Credit:
Ø  UST curve bear-flattened along the 2y10y with 2y and 10y UST yields up 4bps and 2bps respectively WoW. Asian USD credit market remained constructive with spreads tightening further. JACI composite -3bps, JACI IG -3bps and JACI HY -5bps WoW.
Ø  Fitch in its credit outlook report highlighted the negative trend of sovereign ratings. Emerging markets was the focus with pressure points primarily emanating from weak commodity prices while advanced economies are persistently constrained by high government debt. Under Fitch’s coverage, some 22 sovereigns were on negative outlook and only 6 on positive outlook, pointing to continued rating downward pressure ahead.
Ø  Rating changes: SMRT’s outlook was raised to AAA/stable from AAA/negative by S&P following the announcement of New Rail Financing Framework, which is expected to significantly lower SMRT’s annual capex requirement in an asset light model and increase the predictability of profits for the company under a risk-sharing mechanism with the Land Transport Authority of Singapore.
·         CDS: EM Asia 5y CDS spreads mostly widened led by Malaysia +5bps, while China, Indonesia, Korea and Philippines +2 to +3bps WoW.

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