Tuesday, August 2, 2016

Petronas, Etiqa and Malaysia RE downgraded to A- by Fitch following change in methodology; Moody’s placed MAHB on negative outlook

1 August 2016

Credit Markets Weekly

Petronas, Etiqa and Malaysia RE downgraded to A- by Fitch following change in methodology; Moody’s placed MAHB on negative outlook
¨      Investors poured into USTs as benchmark yields strengthened 5-11bps WoW driven by the disappointing US 2Q16 GDP at 1.2% (consensus: 2.5%; 1Q: 1.1%) and plunging oil prices (Brent: -7.1% to USD42.5/bbl), despite a more hawkish tone in the July FOMC meeting. As a result, the longer-dated 7-30y were 10-11bps lower at c.1.28%, 1.45%, and 2.18% respectively. Asian Credit Markets remained firm, Asian CDS was relatively flat throughout the week at 119.7bps, while both IG credit spreads and non-IG bonds tightened 1-2bps to 197.7bps and 6.34%.
¨      On ratings, Korean refiners i.e. SK Innovation (SKI) and SK Global Chemicals’ Baa2 ratings were handed positive outlooks by Moody’s, with the former driven by improving financial profile, stable earnings and cashflows, that could lead to a decrease in debt levels, while the latter was also revised given its full ownership by SKI. Similarly, 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. Fitch slashed Thailand’s PTT PCL’s rating to BBB+/Sta from A-, following the downgrade of the Thailand Sovereign rating to BBB+/Sta. 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.
¨      USD4.0bn deals priced compared to USD5.7bn recorded in the previous week, mainly dominated by issuances from the FI space i.e. EXIM India (Baa3/BBB-/NR) USD1.0bn 10y bond, Kookmin Bank (A1/A/A)’s USD500m 3y bond and CDB Capital (NR/AA-/A+)’s USD500m 5y bond, followed by the private placement deal for Adani Transmission (Baa3/BBB-/BBB-) USD500m 10y bond sale at T+260bps and Glenmark Pharmaceuticals’ (NR/BB/BB) USD200m 5nc3 deal.
¨      July primaries lowest YTD; Swiber headlines drove risk-aversion in HY O&G space. The issuance space was largely quiet last week as July has registered the lowest monthly issuance YTD at around SGD770m, being dominated by a SGD700m 5y issuance by the Housing Development Board (Aaa/-/-). YTD issuances of SGD14.6bn are around 2.7% lower if compared to a similar period last year. The surprise winding-up announcement by Swiber (NR) on Thursday morning renewed concerns for the HY O&G space and has driven selling pressure towards names such as VALZSP, NCLSP and EZISP as UOB and DBS announced that both banks have exposures to Swiber. Nevertheless, it reversed course on Friday night and announced that it has gone for judicial management instead. Interest was also seen in IG and banking papers like MRTSP, CAPITA and OCBCSP. Meanwhile, Sembcorp Marine’s (NR) 2Q16 net profit came in 91% lower at SGD10.7m, partly due to tightening margins and forex losses on its British pound assets. Sabana REIT’s 2Q16 core net income declined considerably by 33.6% to SGD7.3m due to negative rental reversions and revised rental agreements that offloaded some expenses from the lessee to Sabana while its aggregate leverage rose to 41.2% (from 39.6% in 1Q16).
¨      SOR rises. There was a rise in the short-to-mid benchmark SOR, with the 2y rising by 3.5bps to 1.48% while the 5y rose 4bps to 1.75%. Looking ahead, investors will be eyeing the Singapore Jul PMI (2-Aug) for any signs of any improvement in the industrial outlook (consensus: 49.5; June: 49.6).
¨      Sarawak Hidro (AAA) priced MYR5.54bn Sukuk, separated over 3y-15y at YTM of 4.06%-4.60% with proceeds mainly for refinancing purposes. YTD total issuance increased to MYR54.2bn, which is about 60% of our estimation of MYR90bn for 2016, and 59% above the equivalent period in 2015. Secondary flows were thinner last week with MYR2.19bn and MYR12.7bn changing hands in the corporate and govvies market, as investors stayed on the sidelines amid the FOMC and BOJ meeting. MYR strengthened 0.3% WoW to 4.07/USD last Friday and is trading firmer at 4.03/USD this morning after the slower-than-expected US GDP growth of 1.2% for 2Q16. The MGS curve flattened over the week with MGS3y climbing 5bps higher to 2.92% while MGS10y fell 5bps to 3.60%. Cagamas complex accounted for c.15% of total corporate flows last week where tranche 10/16-7/24 settled at 3.135%-4.045% (-5 to +9bps). Followed by AA1-rated KLK 10/16-4/26 which fell 6-41bps to 3.103%-4.498%.
¨      Petronas, Etiqa and Malaysia RE downgraded to A- by Fitch following change in methodology; Moody’s placed MAHB on negative outlook. Fitch downgraded several Malaysia issuers (Petronas, Etiqa, Malaysian RE) to A- from A, following the downgrade of the sovereign rating local-currency issuer default rating to A- last week after the rating agency revised its sovereign rating criteria. Meanwhile, outlook for Malaysia Airports Holdings Bhd (MAHB) was revised to A3/negative, from stable, due to the challenging operating outlook of its wholly-owned subsidiary in Turkey, Sabiha Gokcen International Airport (SGIA) following the coup attempt on 16-Jul and terrorist attacks in early-2016.

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