Turkey Cut Overnight Lending Rate by 25bps; Sharjah Islamic Bank Begins Investor Roadshow

29 August 2016

Global Sukuk Markets Weekly

Turkey Cut Overnight Lending Rate by 25bps; Sharjah Islamic Bank Begins Investor Roadshow   

Highlights & Performance

¨   Bloomberg Malaysia Sukuk Ex-MYR Total Return (BMSXMTR) and Dow Jones Sukuk Total Return (DJSUKTXR) index closed slightly weaker at 105.5 (-0.23%) and 164.4 (-0.09%) respectively, with index yields rising 6.1bps to 2.375% concentrated around shorter-term papers — FGBUH 1/17 (+26bps to 1.22%), EIB 1/17 (+24bps to 1.29%) and DARALA 5/18 (+12bps to 7.26%). This came alongside the hawkish Yellen and Fischer commentaries that asserted greater likelihood of an interest rate rise later this year. While SOAFSK 6/24 was 24bps wider at 3.03% on reports Finance Minister Pravin Gordhan was summoned by police for graft charges. Elsewhere, Axiata (Baa2/BBB+/NR) reported a 63.1% YoY fall in net profit to MYR232.3m in 2Q16, dragged by higher finance cost and foreign exchange losses; although revenue grew 12.8% YoY to MYR5.3bn mainly with the consolidation of Ncell Pvt Ltd which it acquired in Apr-16. AXIATA 11/20-3/26 were seen last traded at 2.16-2.98% (-1 to +2bps). On the other hand, Petronas’s (A1/A-/A-) net profit fell 85.4% YoY to MYR1.6bn in 2Q16 over MYR7.2bn impairment losses on its upstream assets.

¨   Malaysia’s inflation rate eased for the fifth straight month in July to 1.1% YoY from 1.6% in June, driven by falls in the prices of transport, communication, clothing and footwear, opening up further policy headroom for another rate cut if further downside risk materialises; with its CDS widening 1.0bps to 120.0bps. Elsewhere, Central Bank of Turkey (CBRT) cut overnight lending rate by 25bps to 8.50% and kept its benchmark repo rate and overnight borrowing rate unchanged at 7.50% and 7.25% respectively. Turkish risk premium traded lower at 240.0bps range (-8.8bps).

¨   The USD pipeline grew with Sharjah Islamic Bank (A3/BBB+/BBB+) starting its investor meetings from 29-Aug in Asia and Europe. Pakistan (Caa1/B-/B) plans to issue USD1.5bn sukuk while Khazanah Nasional (A3/NR/NR) is considering to sell USD500m exchangeable Islamic bonds. In the MYR space, Gas Malaysia received a preliminary rating of AAA from MARC on its new MYR700 ICP/IMTN Programme where MYR400m will be utilized for pipeline expansions over the next 5 years.

SOVEREIGN UPDATES

Country/Issuer	Update	RHBFIC View
DP World (Baa3/Sta; NR; BBB/Sta)	·       DP World has delayed Jebel Ali’s 1.5m TEU port expansion of Terminal 3 and 4 going into 2017 due to softer market conditions – specifically from the ongoing container freight crisis. Capex guidance remains unchanged for 2016 within the range of USD1.2-1.4bn planned into Jebel Ali and Jebel Ali Free Zone. Capex invested in 1H16 totaled to USD586m, in projects in India, Turkey, Canada, UK and UAE. ·       DP world’s long term credit rating was upgraded by Fitch to BBB/Sta from BBB-/Sta reflecting global trade enabler’s strong performance and stable cash flow generation supported by its geographical diversification, high utilization rate of terminals and long term maturity of its flagship operation in Jebel Ali. (Jebel Ali: 89 years).	Neutral. Its continued progression and expansion of its operations remains a key strength, despite under-containerized markets. The group generated around 60% of EBITDA in Dubai, and the remaining 40% in Africa. The recent upgrade in most of its key ports is likely to capture the latest generation of 18,000 TEUs capacity container ships, preserving DP World’s competitive position. DPWDU 17’ and DPWDU 23’ tightened 6bps to 1.46% and 50bps to 3.14% respectively during the week, while also mostly outperformed year-to-date (see Figure 9).