Moody’s Places Chinese Financial Leasing Companies Under Review for Upgrade; Lippo Karawaci Slashed to B+

29 July 2016

Credit Markets Update

Moody’s Places Chinese Financial Leasing Companies Under Review for Upgrade; Lippo Karawaci Slashed to B+

¨      APAC USD Credit Market: Asian credit markets unchanged post-FOMC. IG spreads rose 1.6bps to 199.4bps while non-IG bond yields narrowed -2bps to 6.27% while Asian CDS was a tad lower at 119.3bps. Benchmark USTs’ settled broadly flat with the exception of the 2y which tighten 1bps to 0.70%, whereas the 30y added 2bps to 2.23%, ahead of the BOJ meeting, plunging oil prices (Brent: -1.9% to USD42.6/bbl) and better initial jobless claims at 266k (consensus: 262k). Turning to ratings, PT Lippo Karawaci was slashed to B+/Sta from BB-/Neg by S&P driven by elevated leverage and poor debt servicing ability amid slower property sales and delays in asset disposals. Moody’s placed Chinese financial leasing companies’ (China Development Bank Financial Leasing, ICBC Financial Leasing, CCB Financial Leasing and CMB Financial Leasing) ratings on review for upgrade to reflect their importance to the parent banks. In the primaries, Adani Transmission (Baa3/BBB-/BBB-) received a whopping 10.2x BTC for its USD500m 4.0% 10y bonds at T+260bps; IPT at 290bps, while India EXIM (Baa3/BBB-/NR) sold USD1.0bn 10y 3.375% bonds at T+187.5bps against IPT +210bps area (BTC: 2.5x).

¨      SGD Credit Market: Sell-off in the O&G space; Sembcorp Marine’s 2Q16 results disappoint. There was a bull flattening in the short-to-mid benchmark swap curve, with the 5y falling by 4.5bps to 1.73% while the 2y dipped 2.3bps to 1.49%. The Swiber winding-up application announcement yesterday has unsurprisingly seen a sell-off in the O&G space on papers such as VALZSP and NCLSP. DBS Group announced that it has exposures of SGD700m to Swiber via loans and off-balance sheet exposures. Meanwhile, Sembcorp Marine (NR) announced that its 2Q16 revenue dipped by 24.8% YoY to SGD908.5m while its net profit was 91% lower at SGD10.7m, partially dragged down by tightening gross profit margins and foreign exchange loss on its British GBP assets.

¨      MYR Credit Market: More contract awards for Pan Borneo Highway Project. A total of MYR2.89bn of contracts awarded to Naim-Gamuda (MYR1.57bn) and Musyati-Mudajaya (MYR1.33bn) for the construction of Pan Borneo Highway Project. Corporate activities increased by 70% to MYR726m. Most active was Cagamas with tranche ’18-’20 on combined MYR110m closing mixed in between 3.528-3.782% (-6 to +10bps). In the primary market, BGSM Broadband (NR) issued MYR840m 9y IMTN at 5.40% amid the internal reorganization of BGSM Group. Govvies market ended mixed with MGS10y settling 1bp lower at 3.60%, while 5y rose 2bps to 3.23%. Nevertheless, MYR strengthened 0.8% to 4.0493/USD after the FOMC meeting.