RAM Downgrades Al-Bayan By 7-Notches to BB2/Neg

21 October 2016

Credit Markets Update

RAM Downgrades Al-Bayan By 7-Notches to BB2/Neg

¨      APAC USD Credit Market: Asia credits strengthened on improved sentiment. IG credit spreads and average HY bond yields narrowed 1-2bps to 192.1bps and 6.45% respectively. Asian CDS traded tighter by c.1bp to 116.6bps. UST yield curve flattened, with the 30y dipping c.1bp to 2.50% on ECB’s Mario Draghi comments that the central bank did not discuss or provide further clarity over its bond buying program. The 2y added 2bps to 0.82%, and 10y climbed 1bp to settle at 1.76%. In the oil markets, the USD appreciation (DXY: +0.40% to 98.315) led to a slip in Brent oil prices (-2.5% to USD51.4/bbl). Moving to primaries, China Great Wall Asset Management (A3/A-/A) sold USD700m 3y bonds at T+135bps compared to guidance levels of T+160bps area and USD800m 5y bonds at T+145bps (IPT: +170bps area). Elsewhere, Delhi International Airport (Ba2/BB/NR) priced USD522.6m 10y at 6.125% against IPT at 6.5%.

¨      SGD Credit Market: Keppel’s O&M segment continues to drag on bottom line. There was a flattening in the short-to-mid SOR curve, with the 2y rising by 2bps to 1.32% while the 5y dipped 0.4bps to 1.69%. Yielder names like ASPSP & EZISP as well as safer papers such as MAPLSP & mid-dated LTAZSP appeared tighter. Keppel Corp’s (NR) 3Q16 revenue and net profit were both down 40% YoY to SGD1.46bn and SGD225.6m respectively largely due to a 63% decline in revenue from the O&M space from project deferments and suspension of its Sete Brasil contracts. Its orderbook currently amounts to SGD4.1bn. Looking ahead, investors will be eyeing the Singapore Sept CPI (consensus: -0.3%; Aug: -0.3%).

¨      MYR Credit Market: Al-Bayan was downgraded to BB2/Neg, from A1/Neg. RAM downgraded the Saudi-based construction conglomerate by 7-notches premised on the deterioration in liquidity profiles and failure to meet the minimum required balance for the FSRA which triggered an event of default. Meanwhile, MARC is conducting its annual review on Sime Darby (AAA/Neg) which will evaluate the conglomerate’s deleveraging progress following the recent assets disposal and share placement exercise. Sime Darby Pc26 has been actively traded in Oct although yield remained flattish at 4.876% yesterday. Liquidity remained thin on the govvies benchmarks with the 3y MGS declining 3bps to 2.99%, while the 10y slipped 1bp to 3.60% amid mild appreciation of the MYR to 4.185/USD. Budget 2017 today will be the key focus with our economist is expecting deficit target of 3.0%.