Fitch Reaffirms Malaysia’s Rating at A-/Sta; Upgrade for Hong Leong Bank

22 August 2016

Credit Markets Weekly

Fitch Reaffirms Malaysia’s Rating at A-/Sta; Upgrade for Hong Leong Bank

                                                                      

APAC USD CREDIT MARKETS

¨      Asian credit markets extends rally with IG credit spreads and average HY bond yields narrowing 4bps to 184.6bps and 6.25% respectively, while Asian CDS tightened 2bps to 112.4bps amid the swift rise in Brent oil prices to USD50.9/bbl last Friday (+8.3% WoW). Meanwhile in the US, benchmark Treasuries yields gained 4-7bps WoW across the curve with the 2y at c.0.75% and the 10y settling at c.1.58% after numerous relatively hawkish Fedspeak in the past week.

¨      Over to ratings, Tata Motors received an upgrade by S&P to BB+/Sta from BB/Sta driven by the success of its wholly-owned subsidiary Jaguar Land Rover Automotive PLC’s (JLR) product portfolio with strong sales and expansion into new segments, which have strengthened Tata Motor’s overall financial position. On the flipside, Moody’s slashed West China Cements’ rating to B1/Neg from Ba3 on the back of the weak and challenging Chinese cement industry which has deteriorated its credit profile as debt/EBITDA is expected to rise to 4.3-4.5x in the 12-18 months from 4.1x in Jun-16. Elsewhere, Noble Group was downgraded by Moody’s to B2/Neg from Ba3/Neg premised on its weaker liquidity position given its limited ability to generate positive operating cash flows amid the challenging commodity environment, further exacerbated by large debt maturities in 2Q17.

¨      Inactive primary with USD2.4bn priced against USD6.8bn in the previous week, with two notable deals from China by Aluminum Corporation of China and China Aircraft Leasing (both Unrated). Looking ahead, China Everbright Bank (Baa2/NR/BBB) and Industrial Bank of Korea (Aa2/AA-/AA-) both have planned investor meetings beginning today and may potentially follow up with USD bond deals.

SGD CREDIT MARKETS

¨      Primary space supported by IG issuance; Otto Marine pursues legal action.  YTD issuances have hit SGD16bn, 4% higher if compared to a similar period last year. Last weeks’ print was led by Mapletree Commercial Trust (Baa1/-/-) which printed a SGD175m 10y at 3.11%, continuing a trend of IG rated issuances as investors appeared to still be less than comfortable with HY prints. Interest was observed in quality names like CCTSP, CHEUNG, SUNSP as well as yielder property/ construction names like PREHSP, OHLSP and KOHSP. Otto Marine (NR) announced that it has successfully defended in arbitration against claims of USD8.8m. In addition, it is pursuing legal action for chartering receivables owing of USD10.5m, as well as filing a winding up application against Hoe Leong Corporation, an industrial heavy machinery company, for payments owing of USD920,000. Meanwhile, another O&G player Vallianz reported 2Q16 revenue decline by 2.1% YoY to USD63.7m while net profit fell 13% to USD4m, mainly due to a USD1.62m impairment charge relating to its Swiber exposure.

¨      SOR declines; July NODX weaker than expected. There was a decline in the short-to-mid SOR benchmark, with the 2y and 5y declining by between 5-7bps to close at 1.38% and 1.65% ahead of the FOMC minutes release. The Singapore July NODX came in significantly below expectations at -10.6% (consensus: -2.5%; June: -2.3%), pulled down by declining exports in 8 out of the top 9 NODX destinations. Looking ahead, investors will be eyeing the Singapore July CPI (23-Aug) and July Industrial Production (26-Aug).

MYR CREDIT MARKETS

¨      Leburaya Duke Fasa 3 (AA-) attracted good demand with 8x BTC for its MYR3.64bn 10-23y Sukuk (coupon ranging 5.14-6.43%). In relation to Duke, EPF is seeking to purchase 40% stake in Konsortium Lebuhraya Utara-Timur (KL), the concession holder for Duke Expressway, from Ekovest. Elsewhere, RAM downgraded Al Bayan Holding Company to A1/sta, from AA3/sta, premised on deteriorating liquidity position and cash flow protection metric amid challenging construction sector in Saudi Arabia. Outlook for Kapar Energy Venture was revised to AA-/Neg by MARC as liquidity profile dragged by the weakened operating performance of the multi-fueled thermal power station. On the other hand, Fitch upgraded Hong Leong Bank to A-, from BBB-, on stronger capitalization, sound asset quality and stable liquidity and funding profile; while Maybank and EXIM Bank of Malaysia was reaffirmed at A- with all 3 banks on stable outlook.

¨      Long-end GII gained on JP Morgan Index inclusion. Yields for 7y GII decreased 9bps WoW to 3.47%, while the 10y GII fell 13bps WoW to 3.58% in reaction to the news of both of the Islamic benchmarks to be included in the JP Morgan’s GBI-EM Global Diversified Bond Index, beginning 31-Oct. The MYR strengthened 0.4% WoW to around 4.01/USD amid higher oil prices; while cost for insuring Malaysia’s sovereign declined with the 5y CDS falling to 119bps (-6bps WoW) as Fitch affirms Malaysia’s rating at A-/sta. Moderate flows of MYR2.98bn in the corporate market. CIMBBank sub-debt 11/22c17 ended the week flat at 5.204% on combined MYR189m trades. Elsewhere, MAHB 12/22 rose 5bps to 4.20% amid the negative outlook from Moody’s on 27-Jul.