Quiet Session for Credits on Eve of OPEC Meeting

30 November 2016

Credit Markets Update

Quiet Session for Credits on Eve of OPEC Meeting 

¨      APAC USD Credit Market: Asian bond market held steady with IG spreads unchanged at 187.9bps while average HY bond yields tightened 2bps to 6.77%. Asian IG credit protection cost grinds tighter to 126.7bps (-1.7bp) led lower by Indian corporate CDS spreads (IDBI Bank, Reliance Industries, Bank of India). US Treasury curve bull flattened, with the 10y at 2.29% (-2bp) and 2y at 1.08% (-1bp) following the slump in Brent oil prices to USD46.4/bbl (-3.9%) on the OPEC impasse, dampening inflation outlook, largely ignoring the upward revision in US 3Q GDP. In the primaries, China’s State Power Investment Corp (A2/A-/A)’s USD900m 5y bonds (priced: T+130bps; IPT: +160bps) and USD300m 10y bonds (priced: T+157.5bps; IPT: +190bps) were well received. The 5y bonds were oversubscribed by 3.2x and the 10y at 6.3x respectively. Later today, Guangzhou Silk Road Investment, guaranteed by Guangzhou Industrial Investment Fund Management Co. (NR/BBB+/A-) looks to sell USD230m Reg S 5y bonds with IPT slated at low 200bps area, while, Agriculture Bank of China (guarantor rating: A1/A/A) via its HK unit will tap the market for USD 3y bonds with IPT at +130bps level.

¨      SGD Credit Market: KrisEnergy receives approval for bond consent solicitation. The short-to-mid SOR curve was mostly unchanged, with only the 2y rising 0.3bps to 1.60% while the 5y stayed at 2.18%. KrisEnergy (NR) announced that it has so far received more than 75% of votes cast in favour of the consent solicitation for its outstanding KRISSP 17s and 18s to, among other things, allow for a 5 year maturity extension. Ezra Holdings (NR) announced its FY8/2016 results, where revenue dipped by 8% to USD136m, while it suffered a net loss of USD419m due to gross margin compression and impairment loss on fixed assets, assets held for sale and investments in associated companies totaling USD270m.

¨      MYR Credit Market: MYR2.0bn of 10y MGS 11/26 (Re-opening) drew a decent BTC of 2.65x (from 1.75x on MYR3.0bn issue in Aug 2016), with average yield of 4.465% above the level indicated in pre-sale trading of 4.44/40%. MGS yields closed mixed as investors eyed falling oil prices ahead of OPEC meeting, with the 3y yield gained 7bps to 3.92% while 5y yield shed 7bps to 4.02%. Elsewhere, Alliance Financial (RAM: A2)’s net profit fell 1.5% YoY to MYR132.5m in 2QFY17, due to a 4.2% fall in net interest income and a 16.0% YoY decline in non-interest income (driven primarily by a foreign exchange loss of MYR11.9m from a gain of MYR5.6m in 2QFY16). ALLIANCEB B3T2 10/25c20 was last traded at 5.198% (+73.1bps) on 23 Nov. DRB-Hicom (MARC: A-) slipped into the red in 2QFY17 with a net loss of MYR309.6m against a net profit of MYR3.9m in 2QFY16. The losses were attributed by lower revenue in automotive segment (-25.2% YoY to MYR1.9bn) and one-off MYR130.2m re-measurement loss of previously held equity interest in Pos Malaysia. DRB-Hicom 11/18 traded at 5.187% (unchanged) on 19 Oct.