CPO Prices Buoyed by Falling Inventories

18 January 2017

Credit Markets Update

CPO Prices Buoyed by Falling Inventories   

MYR Credit Market:

¨      Inflation number in focus. The market awaits the inflation print (to be released at 12pm later) with consensus expectations of 1.9% for Dec-16, from 1.8% in the previous month, taking into effect the impact from higher administered prices. Govvies ended the day flattish with top traded 3y GII staying at 3.64%, alongside a relatively stable USDMYR at 4.46/USD.

¨      AAA and GG bonds dominated corporate activities. Total trading volume improved 21% to MYR413m yesterday with the top traded concentrated in the AAA and GG space. Notably, Cagamas 8/17 realigned 26bps lower to 3.13%, from the last trade in Nov-16. We also saw some GG and AA3 bonds ending firmer such as PTPTN ’26 (-2bps to 4.46%), Prasarana ’23 (-1bp to 4.20%), IJM ’22 (-2bps to 4.59%) and Gamuda ’18 (-18bps to 4.42%).

¨      CPO prices supported by falling inventories. Palm oil stockpiles are expected to decrease in Dec-16, to the lowest level since Aug, based on the median estimates from Bloomberg, due to the rainy weather which disrupted the production. CPO prices are likely to stay elevated in the short-to-medium term as supplies will remain tight in 1Q17. The palm oil futures for delivery in Feb-17 rose 1.5% to MYR3,255/tonne yesterday.

APAC USD Credit Market:

¨      Safe-haven assets demand increased following U.S. President-elect, Trump’s comment on the strong USD and as the British PM expressed plans for a hard Brexit showing lack of interest for partial EU membership. Treasuries rallied yesterday, driven by a weaker USD; 2y and 10y UST yields fell by 4-7.5bps to 1.15% and 2.33% respectively. This risk-off sentiment was also observed in the surge in gold prices, which increased by 1.18%, as well as the fall in S&P 500 to 2,267.89 points at the time of writing.

¨      Asian Credit continued to trade sideways ahead of upcoming events. The HY credit spreads tightened by 3bps to 6.61%, while the IG credit spreads were quoted at 1.5bps wider. Furthermore, the iTraxx AxJ IG stood at 118.3 (+2.2bps) at the time of writing, with higher CDS seen in IDBI Bank Ltd, Hutchison Whampoa Ltd and Korea Development Bank.

¨      The primary markets stayed busy ahead of Trump’s inauguration on 20-Jan. Hong-Kong based insurance company, FWD Ltd (issue rating: Ba1e/NR/BB+e) priced USD250m perp NC5 at 6.250% (IPT at 6.875% area). There was high demand for this bond, with BTC of 27x. State Bank of India (issue rating: Baa3/NR/BBB-e) issued USD500m 5y, 3.25% bonds at T+145bp (IPT at T+170bp), with BTC of 3x. China Development Bank Corp (issue rating: Aa3e/NR/NR) issued 3 tranches of bonds (i.e. 5y at 2.625%, 10y at 3.375%, 20y at 4.000%), total up to USD2bn. GOHL Capital Ltd (issue rating: NR/NR/NR) sold USD1bn 10y bonds at T+198bp (IPT +220bp area). Yuzhou Properties proposed to issue senior notes under Reg. S.

¨      Moving to rating action, Moody’s initiated Ba3/Sta rating to Bukit Makmur Mandiri Utama to reflect the company’s well-recognized brand and good relationships with Indonesia’s largest coal concession holders, in addition to resilient operating performance and proactive capital management. China Metallurgical Group Corp and its subsidiary, China Jingye Construction Engineering Singapore Pte Ltd were assigned CreditWatch positive by Moody’s to reflect CMGC’s steady revenue growth, improved earnings and reduced debt, and its financial leverage will continue to improve over the next 12-18 months.

SGD Credit Market:

¨      First REIT topline grew from acquisition. First REIT released its 4Q16 results, with revenue growing 5.1% to SGD27m due to the acquisition of its Kupang property while net profit was only SGD36,000 due to non-cash net fair value losses on its investment properties. In addition, First REIT, with its sister company Lippo Malls Indonesia Retail Trust (Baa3/-/-), are postponing an acquisition of an integrated hospital and mall development in Yogyakarta from their sponsor, Lippo Karawaci, due to delays in receiving the necessary government approvals.

¨      The short-to-mid SOR curve declined yesterday, with the 2y falling by 5.3bps to 1.56% while the 5y dipped 8.5bps to 2.12% as the SGD strengthened by around 1% to 1.415/USD.