Fitch Downgraded Malaysia’s and Thailand’s O&G and Insurance Firms After Sovereign Rating Revision

28 July 2016

Credit Markets Update

Fitch Downgraded Malaysia’s and Thailand’s O&G and Insurance Firms After Sovereign Rating Revision

¨      APAC USD Credit Market: Quiet tone in Asian Credits ahead of FOMC. IG credit spreads and average HY bonds held steady at 197.9bps and 6.29% respectively, although the iTraxx AxJ was marginally higher at 120.8bps amid the sell-off in Chinese equities. Elsewhere, US Fed left interest rates unchanged at its July FOMC meeting, despite the hawkish tone and noting the improvements in employment and growth indicators as benchmark UST yields plunged 3-7bps with 10y and 30y at c.1.49% and c.2.21% respectively. On ratings action, Fitch slashed Thailand’s PTT PCL’s rating to BBB+/Sta from A-, following the downgrade of the Thailand Sovereign rating to BBB+/Sta in the previous week. On primary issues, Adani Transmission (Baa3/BBB-/BBB-) may price USD benchmark 10y bonds today with IPT at 290bps, whereas India EXIM (Baa3/BBB-/NR) may sell USD benchmark 10y bonds with IPT at +210bps area.

¨      SGD Credit Market: OCBC’s bottom line falls from non-interest income decline. There was a parallel rise in the short-to-mid curve by around 4.7bps, with the 2y and 5y closing at 1.51% and 1.77% respectively. Interest was observed in REITs such as AREIT and LMRTSP as well as yielder names like NOLSP and CTRPIJ. UOB and OCBC released their 2Q16 results which saw UOB’s net income rise by 5.1% YoY to SGD803m while OCBC’s net income fell 17% to SGD926m largely due to a 16% fall in non-interest income. Meanwhile, Swiber (NR) announced that it was making a winding-up application for the company, with around SGD551m bonds outstanding (including a CNY450m bond).

¨      MYR Credit Market: Petronas, Etiqa and Malaysia RE downgraded to A- by Fitch; Moody’s placed MAHB on negative outlook. Fitch downgraded several Malaysia issuers (Petronas, Etiqa, Malaysian RE)  to A-, from A, following the downgrade of the sovereign rating local-currency issuer default rating to A- last week after the rating agency revised its sovereign rating criteria. Meanwhile, outlook for Malaysia Airports Holdings Bhd (MAHB) was revised to A3/negative, from stable, due to the challenging operating outlook of its wholly-owned subsidiary in Turkey, Sabiha Gokcen International Airport (SGIA) following the coup attempt on 16-Jul and terrorist attacks in early-2016. MACB ’22-’24 was seen traded 1bp higher at 4.148-4.208% yesterday. Elsewhere, Jambatan Kedua 5/25 inched 17bps lower from its coupon to 4.13% on the debut trade. Over in the govvies market, investors stayed on the sidelines as they were waiting for more hints from the FOMC meeting overnight. The GII10y was the top gainer (-3bps to 3.73%). MYR rebounded this morning to 4.06/USD, from 4.08/USD yesterday, after US kept its policy rate unchanged at 0.25-0.50%.