Indonesia’s Cabinet Reshuffle Potentially Positive; DIB Posts Improved 1H Profit

1 August 2016

Global Sukuk Markets Weekly

Indonesia’s Cabinet Reshuffle Potentially Positive; DIB Posts Improved 1H Profit  

Highlights & Performance

¨   Bloomberg Malaysia Sukuk Ex-MYR Total Return (BMSXMTR) and Dow Jones Sukuk Total Return (DJSUKTXR) index ticked up by 0.30-0.35% to 105.1 and 162.4 respectively, with yields declining 5.5bps to 2.393%; this is despite the renewed slide in crude oil prices back towards USD42.46/bbl (-7.1% WoW). Turkish sukuk recovered some losses incurred after the shock military coup — TURKSK 3/18-6/21 at 3.27-4.17% (-21 to -17bps) and ALBRK 6/19-11/25 at 6.06-9.08% (-39 to -20bps). Elsewhere, DIB, SIB and EMAAR papers closed higher post positive earnings. This came alongside the Treasuries rally after soft US GDP data and reaffirmation of gradual path of normalisation.

¨   Saudi Arabia’s CDS traded wider at 183.0bps (+16.2bps) as growth momentum softened further at 0.70% QoQ in 1Q (from the revised 1.48% previously), and foreign reserves continued to fall to SAR2.11trn in June (from SAR2.15trn in May). On the other hand, Turkey’s CDS tightened slightly to 274.0bps (-1.6bps) although its trade balance deficit widened further to USD6.56bn in June from USD5.08bn in May. Indonesia’s cabinet reshuffle with reappointment of World Bank managing director Sri Mulyani Indrawati as finance minister helped to boost confidence in the country’s growth prospects (see sovereign/corporate update), with its CDS traded tighter at 160.7bps (-2.0bps).

¨   In the primary space, Mohammad Al Barwani Sukuk (NR) issued USD51.02m 6/21c19 sukuk at 8.5%. Sarawak Hidro (AAA) priced MYR5.54bn 3-15y sukuk murabahah at 4.11-4.67%, whereas BGSM Broadband (NR) sold MYR840m 9y IMTN at 5.40%.

SOVEREIGN UPDATES

Country/Issuer	Update	RHBFIC View
Indonesia  (Baa3/Sta; BB+/Pos; BBB-/Sta)	¨    President Joko Widodo initiated the second cabinet reshuffle since his appointment as President on 27 July 2016 (first reshuffle was on 12th of August 2015), reshuffling 13 of the 34 posts in his cabinet. ¨    Key highlights of the reshuffle are the appointment of the World Bank Managing Director Sri Mulyani Indrawati as Finance Minister (replacing Bambang Brodjonegro) while Bambang Brodjonegro takes on the role of head of the National Development Planning Agency (Bappenas). Sri Mulyani is known to valiantly tackle corruption in Indonesia and initiating tax reforms.	Positive. The reshuffle indicates political and institutional strength under President Jokowi’s leadership as he balances political interests, such as tackling corruption as seen in the appointment of Sri Mulyani, and in our opinion improved quality of the cabinet if compared to the previous reshuffle. The INDOIS curve positively reacted to the reshuffle, noticeably seen in the USD sukuk sovereign basket, as its average yield tightened 36bps during the week.
Dubai Islamic Bank (DIB) (Baa1/Sta; NR; A/Sta)	¨    1H16 net profit rose 11% YoY to AED2bn compared to AED1.8bn, due to improved revenues and declining impaired losses (1H16: AED191; 1H15: AED276m). Total income rose 17% YoY for 1H16 (1H15: 23% YoY) due to growth in the bank’s core business. Cost to income ratio remained stable at 34.3% compared to 34.1% in 1H15. ¨    Healthy liquidity; its financing to deposit ratio of 87% compared to 88% as at end 2015. ¨    NPL ratio improved to 4.5% at the close of 1H16 against 5% as at end-2015. Overall coverage ratio stood at 150% at end of June 2016 compared to 148% as at end December 2015. ¨    DIB’s CAR stood at 18% as at end of 1H16 (1H15: 17.1%) and T1 ratio at 17.8% (1H15: 16.7%).	Neutral. Given challenging conditions in the UAE economy from lower oil prices, DIB has displayed stable growth in its net profit, healthy liquidity, improved asset quality and strong CAR & T1 ratios. DIB names marginally reacted to its 1H16 results, with average yields moving by c. 1bp during the week.