Brent and WTI Start to Diverge; Gajah Tunggal On Credit Watch Negative

2 August 2016

Credit Markets Update

Brent and WTI Start to Diverge; Gajah Tunggal On Credit Watch Negative

¨      APAC USD Credit Market: Asian Bond Markets remain stable. The iTraxx AxJ settled 1bp lower to 118.5bps while average HY bond yields continued to tighten -3bps to 6.27%, although IG spreads was seen marginally wider at 198.5bps. Benchmark USTs’ bear steepened climbing 3-9bps higher as the 10y spiked 7bps to 1.52% on volatile oil prices which temporarily breached below USD40/bbl (WTI: -3.7% to USD40.1/bbl; Brent: -0.8% to USD42.1)along with the slew of US new corporate debt offering including those of Microsoft Corp. Moving to rating, PT Gajah Tunggal was cut to B-/Negative Watch from B/Neg by S&P driven by rising refinancing risk for its USD500m notes due in Feb-18 amid high capex spending, investments in working capital and the lack of cash build-up. In the primary front, CSI Properties (Unrated) priced USD250m 5y bonds at 4.875%; IPT at 5.125% area, while Hong Kong Airlines (Unrated) sold USD250m tap of 2019 bonds at 5.65% against IPT at 6%.

¨      SGD Credit Market: Vallianz reported its exposure to Swiber; Starhill REIT’s 4Q NPI largely unchanged. There was a decline in the short-to-mid SOR curve as the 2y fell 4.4bps to 1.44% while the 5y dipped 5.1bps to 1.70%. Interest was observed in higher grade names such as HDBSP and CAPLSP as well as yielder papers like CWTSP and CTRPIJ. Starhill Global REIT (BBB+/Sta) announced that its 4QFY6/16 revenue rose 3.6% YoY to SGD53.6m due to the acquisition of Myer’s Adelaide in May-2015 while net property income was largely unchanged at SGD41.4m (0.2% YoY). After the recent sell-down in both its bonds and equities, Vallianz (NR) clarified that its proportion of revenue from Swiber comprised around 35% of total FY2015 revenue, while it has outstanding receivables of USD3.2m once outstanding payables and receivables are netted off.

¨      MYR Credit Market: Quieter across MYR credit, with thin flows of MYR263m against last week’s average of MYR428. Among the top traded were the newly issued Jambatan Kedua 7/26 (GG) (-0.5bps to 4.184%) and RHB sub-debt 5/22c17 (AA3) (-23bps to 4.143%). Elsewhere, UMW Holdings Berhad (AA2) is in talks to form a USD2.0m technology venture in North America with United States Spark Labs International. UMWH 6/17-2/21 was seen traded at 4.181-4.699% (last traded on 14-29 July). There was a bull-steepening in the GII curve with the 3y closing at 2.53% (-6bps) and 5y closing at 3.31% (-3bps), forming a difference of 12-37bps as compared to MGS benchmark of similar maturities. On macro front, loan growth marked its weakest level in nine years at 5.6% YoY in June from 6.2% in May.