Credit Market Watch: Summary for week ending 23-Sep
· MYR Credit:
Ø MGS curve was pretty much unchanged for the week. Market experienced some weakness before the US FOMC meeting but stabilised after the outcome which turned out to be not as hawkish as initially thought. Domestic corporate bonds generally traded in range as there is a lack of strong directional bias.
Ø Macro update: 1) The index of leading economic indicators fell at a faster pace of 2.5% YoY in July, but our economic research attribute the larger decline to holiday effect during the month, citing sign of stabilisation on a 3M average basis and maintain that 2016 full year real GDP forecast to come in at 4.1%. 2) CPI in August rose 1.5% YoY (Survey: 1.3%, Prior: 1.1%) with YTD average of 2.3% YoY. Key drivers were higher increases in “recreation services and culture” and “heath” category and the low in July was due to base effect. Inflation is expected to average 1.5-2.0% in Sep-Dec 2016, and 2.0-2.5% on a full year basis in 2016 and 2017.
Ø Relative value: Genting Capital (GENTMK), unconditionally and irrevocably guaranteed by Genting Bhd, still offer relative value in the AAA space with GENTMK’22 last traded 24bps wide from our AAA fitted line which is dominated by mainly GLC and project financing names like Danga Capital, Telekom, TNB, Aman and Putrajaya. We expect RAM to reaffirm GENTMK at AAA/stable in its annual review due by Sep 2016 given the company’s sturdy balance sheet in net cash position, strong operating cash flows generation a well-diversified portfolio of business. Its Singapore-listed subsidiary, Genting Singapore Plc, was upgraded to A3 by Moody’s last week.
· Asian Credit:
Ø UST curve bull-flattened WoW with the 10y UST yield declining 7bps as the FOMC outcome, which is viewed as fairly neutral, left rate unchanged, lowered the median assessments on future path of hike by 25-50bps and reiterated data dependency on rate increase by end-2016. The future implied probability of hike by Dec 2016 last stood at 55.4%,
Ø Asian USD credit market reacted positively post FOMC meeting with pipelines lining up for issuance. Spreads tightened WoW with JACI composite -6bps, JACI IG -5bps and JACI HY -10bps. In sovereign space, INDON curve bull-flattened with yields 20-25bps down from belly to long end, MALAYS and KOREA strengthened by roughly 10bps while PHILIPs 10-20bps stronger.
Ø Rating update: Genting Singapore was upgraded to A3 from Baa3 by Moody’s, citing strong liquidity profile with a history of keeping net cash position and is expected to remain so in the next 12-18 months due to its decent operating cash flows generation of around SGD900m-SGD1b in 2016 and 2017 which is sufficient to cover debt obligations, dividend payout and maintenance capex. Specifically noted was the demonstration of financial prudence in its JV development of Resorts World Jeju and the rating of Genting Singapore is no longer viewed as structurally subordinated to its 100%-owned subs Resorts World Sentosa as its debt level has declined and is expected to drop further.
· CDS: EM Asia 5y CDS spreads generally edged higher WoW. Philippines widened most by +10bps, followed by China and Thailand +4bps while Malaysia and Indonesia +1bps WoW.