OPEC Back in the Spotlight; Latest SGD Bond Casualty in Rickmers

28 November 2016

Credit Markets Weekly

OPEC Back in the Spotlight; Latest SGD Bond Casualty in Rickmers

                                                                       

APAC USD CREDIT MARKETS

¨      US Treasury yields continue to drive higher on positive US macro-economic data such as manufacturing PMI, durable goods orders and sentiment from University of Michigan, while the November FOMC minutes strengthened the view for a December rate hike with FFR futures probability at 100% for a 25bp rate hike. Despite the shortened Thanksgiving trading week, UST 2y rose 5bps WoW to 1.12%, while the 10y was marginally higher at 2.36%. Consequently, Asian bond markets settled mostly mixed in a relatively quiet week. IG spreads tightened 4bps to 186.4bps, whereas speculative bond yields widened 2bps to 6.80%. Elsewhere, CDS of HK Land, Swire Pacific and Bank of India narrowed 8-10bps, while PETMK and TELMAL CDS surge above their 1-year average high. Brent prices climbed 0.81% WoW to USD47.2/bbl, despite tumbling more than 3% last Friday as market participants turn bearish on a potential deal at its OPEC meeting in Vienna this week.

¨      Over to ratings, Moody’s revised Swire Pacific’s outlook to negative from stable; affirmed at A3 following the company’s announcement to expand its China Coca-Cola business for CNY5.87bn (USD852m) in two acquisitions. The acquisition will likely be funded through cash and existing credit facilities, which could lead to an increase its leverage and delay the improvements of its credit profile. COFCO HK’s rating confirmed at A3/neg by Moody’s; previously on review for downgrade following the company’s announcement of the acquisition of the remaining stake in Nidera Capital on 1) strong linkages with parent COFCO Corporation, where COFCO HK accounts for 74% and 62% of COFCO Group’s total revenue and assets; 2) Oversight and support from COFCO Group and from the Chinese government; 3) expectation that COFCO HK and COFCO group performance will improve with Nidera Capital.

¨      Asian issuances touched USD225.9bn YTD; New supply last week touched USD5.64bn or approximately USD20.7bn November MTD. Chinese issuers continue to dominate this space with 90% share as FI’s continue to boost capital requirements.

SGD CREDIT MARKETS

¨      Rickmers becomes the latest SGD bond casualty. There were no new issuances this week, with YTD issuances standing at SGD19.6bn, or 16% lower if compared to a similar period last year. Issuances have been lower over the past month due to base rate volatility from the US Presidential election as well as a near-general market consensus of a FOMC rate hike in December and general HY credit risk aversion. Rickmers Management Trust (NR) became the sixth SGD bond to default since 4Q15 after it failed to service interest on its SGD100m RMTSP 5/17 while Swissco Holdings (NR) has officially filed for judicial management. Meanwhile, Swiber (NR) succeeded in disposing of a vessel that had been mortgaged to DBS for USD10.25m. Lastly, KrisEnergy (NR) affirmed that it would not be revising its final terms of its bond consent solicitation exercise. KrisEnergy had previously revised its initial terms, but bondholders were still unhappy and were mainly demanding for higher coupons in exchange for the 5 year maturity extension. According to the upstream O&G player, consent solicitation approval is required latest by 9-Dec in order to access bridging facilities to honour its interest payments.

¨      SOR marginally tightened. The short-to-mid swap curves closed tighter WoW by around 1.5-2.5bps which saw the 2y and 5y close at 1.64% and 2.23% respectively after the keen rise in the SOR post the US presidential election. Looking ahead, investors will be eyeing the Singapore Nov PMI (2-Dec), which has rebounded recently after 14 months of consecutive contractionary expectations.

MYR CREDIT MARKETS

¨      OPR stayed at 3.0%, foreign reserves increased to USD98.3bn. BNM kept the policy rate unchanged, indicating that risk of destabilizing financial imbalances has been contained while expecting headline inflation for 2016 to be at the lower bound of the projected 2.0-2.5%. The CPI increased at slower pace of 1.4% YoY in Oct (Sep: 1.5%) on lower retail fuel prices and communication costs compared to the year earlier. Despite the benign inflation, our economist expects BNM to be cautious and leave interest rate unchanged in 2017 given the rising volatility of the currency, although there is room for a further rate cut should growth fall below expectation in 2017 and if the MYR stabilises at a stronger level. Foreign reserves increased by USD0.5bn since end-Oct to USD98.3bn as at 15-Nov despite the volatile foreign currency post-Trump. The MYR calmed last week, weakened 0.9% WoW to 4.4583/USD, from 2.9% and 2.3% in the earlier weeks. The MGS moved sideways with the 3y and 10y rising 3bps to 3.90% and 4.43% respectively. The MYR2.0bn 10y MGS Reopening auction will be the focus this week where the WI was last quoted at 4.45/35% last Friday.

¨      Country Garden stays on negative outlook. RAM maintained AA3/negative on China’s based property developer premised on its high adjusted net gearing of 0.99x as at June-16, although its sales jumped 167% YoY to CNY225.6bn in 9MFY16. The rating agency added that its outlook could revert back to stable if its leverage reduces to 0.7x and sustains a minimum operating cashflow debt coverage of 0.3x. The corporate market was quiet. We saw only c.MYR500m issued last week from Bank Muamalat. Liquidity remained thin in the secondary market with MYR2.1bn changing hands throughout the week after the spiked of the govvies yields in the previous weeks. Cagamas ’17-‘21 and Khazanah 16’-’17 dominated almost half of the trading volume with yields generally realigning 11-77bps higher.