Market Cautious Before US Presidential Election; WCT on Developing Outlook

7 November 2016

Credit Markets Weekly

Market Cautious Before US Presidential Election; WCT on Developing Outlook

                                                                       

APAC USD CREDIT MARKETS

¨      Asian credits mixed amid the weak market tone. IG credit spreads edged 5bps wider to 196.2bps, whereas speculative bond yields dipped 4bps to 6.44% amid the heavy primary market supply. Furthermore, Standard Chartered Bank’s move to not exercise the call on its USD750m 6.409% Tier 1 notes on 31 Jan 2017 due to economic reasons, introduced another level of uncertainty for investors. Asian CDS added 3.2bps WoW to 118.7bps. Separately, UST yields strengthened across the curve with yields dipping 5-9bps lower as investors turned their attention to H. Clinton’s shrinking lead in the US election polls, offsetting a strong Oct jobs report of 161k (consensus: 175k; prior.156k). Both UST10y and 2y dipped -7bps to 1.78% and 0.78% respectively.

¨      Turning to ratings, Moody’s affirmed 4 Chinese distressed asset management companies i.e China Great Wall Asset Management, China Huarong Asset Management, China Orient Asset Management and China Cinda Asset Management; changed outlook to stable from negative driven by i) strong government support through the Ministry of Finance and ii) strategic importance to the Chinese financial system. Contrastingly, Fitch revised Sunac China Holdings Ltd’s rating outlook to negative from stable; affirmed at BB to reflect surging leverage due to landbank replenishment to maintain its sales expansion. Fitch forecasts its net debt/adjusted inventory to remain above 45%, within its downgrade trigger.

¨      Moreover, Moody’s changed Greentown China Holdings Ltd’s rating outlook to stable from positive; affirmed at Ba3 on expectations that the property player’s financial profile will moderate around its current level than achieving a material improvement over the next 12-18 months. Revenue/adjusted debt will remain around 55-60% as the company continue to look towards debt financing for business expansion. Furthermore, S&P slashed China Oilfield Services’ (COSL) rating to BBB/Sta from BBB+/Sta on the back of weak financial performance owing to its rising leverage profile. S&P expects COSL’s FFO/debt to hover around 0.13-0.15x in 2017 compared to 0.08-0.10x in 2016, and improve to 0.20x in 2018 as E&P companies step up capex plans.

¨      Quiet primary market dipped as market participants turned cautious amid the US election. Supply decreased to USD4.0bn from USD7.5bn in the preceding week, bringing YTD issuance to USD209.1bn. Issuances continued to be dominated by Chinese credits as seen with Huishang Bank (NR)’s USD888 AT1 Pnc5 bonds, Aluminum Corp of China (NR/NR/BBB)’s USD500m Pnc5, and Bank of China (Aa3/NR/NR)’s USD500m 3y green covered bonds.

SGD CREDIT MARKETS

¨      Noble’s sale plans approved. Primary markets were quiet again this week, with YTD issuances now only around SGD17.6bn. Noble Group (B2/B/BB+) saw shareholders vote in favour of its planned sale of Noble Americas Energy Solutions to Calpine Group for USD 800m plus working capital, essential to its intention to raise cash to match short term liabilities (as of June 2016 close to USD 2bn). Perisai Petroleum Technology Berhad (PPTB), a Malaysian O&G services company, was served a winding up petition in relation to its irrevocable guarantee to the defaulted debt issued by Perisai Capital (L) Inc. Ezra Holdings (NR), whose subsidiary EMAS Offshore Limited (EOL) owns 11.5% stake in PPBT, is monitoring the situation and accessing the impact on the group. KrisEnergy (NR) announced a planned injection of SGD400m by its shareholder Keppel Corporation (NR), while announcing its intention to extend the maturities of bonds maturing 2017 (SGD130m) and 2018 (SGD200m) to 2022 and 2023 respectively. Vallianz Holdings Limited (NR) announced its intention to fully redeem its SGD60m notes maturing in Nov, from internally generated funds and advances from its shareholder. Among primary issuances, Frasers Logistics and Industrial Trust (NR) announced the establishment of a SGD1bn Multicurrency Debt Issuance Program and have appointed DBS Bank and ANZ Banking Group as joint arrangers and dealers. Mizuho Bank (A1/A/NR), International Bank for Reconstruction and Development (Aaa/AAA/AAA) and Mapletree Commercial Trust (Baa1/NR/NR) price SGD 40m, 500m and 85m of debt.

¨      PMI data may point to improvement in manufacturing. There was a bull flattening in the short-to-mid SOR curve as the 2y dropped -6.5bps to 1.31% while the 5y fell -4bps at 1.73%. PMI data was mixed over the week. The Nikkei Singapore PMI fell to 50.5 in October from a 19-month high of 52.9 a month before. The official Singapore PMI however stayed pat at 50.0 in October, while the electronic sector PMI rose to 50.8, the first sign of expansion since June 2015. Looking ahead, investors will be eyeing the release of the Singapore’s reserves.

MYR CREDIT MARKETS

¨      Developing outlook for WCT; Early redemption of Eversendai’s MYR500m Sukuk; MRCB Southern Link on downgrade risk. MARC placed WCT on developing outlook in view of the recent change of control and exiting management which may alter the Group’s asset monetization and de-gearing plans. WCT 4/20 was seen traded 14bps tighter at 5.955% last week, compared to the week earlier. RAM has withdrawn its A2/Sta rating on Eversendai following the full redemption of its MYR500m Sukuk. Elsewhere, the rating agency also expect traffic volumes on MRCB Southern Link to deteriorate further following the newly impose MYR20 fee on all foreign-registered vehicles entering into Malaysia via the Johor-Singapore Causeway and the Tuas Second Link. The concessionaire’s BB3/Neg rating likely be downgraded should the buyout plans and/or refinancing plans do not occur.

¨      Corporate activities were 13% WoW slower at MYR3.3bn with trading flows tilting towards the quasi-government and infrastructure bonds. Cagamas was the most active throughout the week with MYR570m from tranche maturing ’16-33 ending mixed at 3.03-4.74% (-25bps to +8bps from previous trade). Newly issued Celcom Networks 10/21 and 10/36 on combined MYR321m trades, settled 15-17bps below coupon at 4.70% and 5.10% respectively. Other top traded names include Prasarana (MYR180m), Encorp Systembilt (MYR150m), LDF3 (MYR145m) and Sarawak Energy (MYR136m). Over the primary market, Bank Pembangunan (AAA) issued MYR1.5bn IMTN across 3 separates tranches – 10y at 4.50%, 15y at 4.75% and 20y at 4.95%.

¨      Cautious sentiment amid uncertainties from FOMC and US election. Trading volumes were 20% slower at MYR12.2bn, from MYR15.3bn in the previous week amid the uncertainties from US. We expect investors to stay cautious this week ahead of the Trump-Hillary showdown on the 8-Nov (Tues). Market participants are also awaiting for the Malaysia 3Q GDP this Friday (11-Nov) for more hints before the final MPC meeting on the 23-Nov. The MGS curve steepened over the week with the 3y falling 7bps to 3.01%, while the 10y rose 2bps WoW to 3.62%. The MYR settled flattish at 4.198 last week against the Greenback, but weakened against other currencies, weighed down by the falling Brent crude oil price which plunged 8% WoW to USD45.5/bbl as Saudi-Iranian fallout raise doubt on a deal from OPEC