Turkish Coup Attempt Hangover; Qatar’s Banking System on Stable Outlook by Moody’s

25 July 2016

Global Sukuk Markets Weekly

Turkish Coup Attempt Hangover; Qatar’s Banking System on Stable Outlook by Moody’s

Highlights & Performance

¨   Bloomberg Malaysia Sukuk Ex-MYR Total Return (BMSXMTR) and Dow Jones Sukuk Total Return (DJSUKTXR) indices were relatively flat at 104.7 (-) and 161.9 (-0.14%) respectively, with yields rising 2.9bps to 2.448% concentrated around Turkish sukuk; with spreads widening significantly on concerns about economic repercussions of the attempted coup on 15-July, as well as Moody’s review for downgrade pressure of its Baa and the downgrade to BB/Neg from BB+ by S&P. This came along despite further overnight lending rate cut of a 25bps to 8.75%, with the TURKSK 3/18-11/24 standing at 3.58-4.81% (+51-77bps), TUFIKA 5/18-4/19 at 4.34-4.67% (+121-124bps), KFINKK 6/19-2/26 at 4.70-7.50% (+48-102bps) and ALBRK 6/19-11/25 at 6.29-9.52% (+70-95bps). Elsewhere, DARALA 5/18-5/19’ were 29-63bps wider at 7.62-7.92% after it posted a 38.7% YoY fall in Q2 net profit t0 SAR43.2m, dragged by slower land sales.

¨   Bank Indonesia (BI) kept its policy rates unchanged at 6.50%, and remained confident on macroeconomic stability and opines that the tax amnesty program will boost government’s fiscal capacity as well as enhance domestic liquidity; with its CDS widening 3.6bps to 162.6bps. On the other hand, Malaysia’s CDS widened 5.0bps to 135.0bps amid renewed headline risk although inflation edged down for the fourth consecutive month to 1.6% YoY in June (from 2.0% in May) while foreign reserves rose to USD97.3bn as at 15-July (from USD97.2bn in 30-June).

¨   The outlook for Qatar’s banking system maintained stable by Moody’s on expectation that continued government spending will support lending opportunities for Qatari banks. Turning to the MYR primary front, the MYR3.5bn 5y GII Reopening auction drew good demand of 2.45x BTC, with average yield of 3.401% (which was 34bps lower than the similar issuance in February). Jambatan Kedua (GG) priced MYR2.6bn sukuk, separated over 7-25y at final guidance of 3.91-4.86%, while PTPTN (GG) priced MYR3.5bn 7-25y sukuk at 3.90-4.85%. On the other hand, KWAP plans to become a full-fledged Islamic pension fund to further deepen the Islamic finance market after KWSP started its MYR100bn Islamic Saving Plan last month.

SOVEREIGN UPDATES

Country/Issuer	Update	RHBFIC View
Turkey (Baa3*-; BB/Neg; BBB-/Sta)	¨    President Erdogan declares a country-wide state of emergency for three months. ¨    Moody’s reviews its Baa rating for downgrade; while S&P hands a downgrade to BB/Neg from BB+. ¨    Central Bank of Turkey (CBRT) cut overnight lending rate by 25bps to 8.75%, and a cumulative of 200bps since March. But, the one-week repo rate and overnight borrowing rate were kept unchanged at 7.50% and 7.25% respectively.	Mildly negative. With the failed coup attempt, we are concerned about the potential adverse effects on its long-term growth include: (a) reduce foreign direct investment flows through diminished investor confidence; (b) weaker government capacity given its significant exposure to external vulnerabilities, with nearly USD170bn (c.24% of GDP) to be rolled over in the next 12 months; and (3) policy uncertainty.