MPC Meeting In Focus; Axiata Raising MYR2.67bn from Edotco Sale

19 January 2017

Credit Markets Update

MPC Meeting In Focus; Axiata Raising MYR2.67bn from Edotco Sale   

MYR Credit Market:

¨      All eyes on the MPC meeting today; Govvies and MYR ended firmer. We are expecting BNM to keep policy rate unchanged at 3.0% given the current level of the MYR. MGS curve flattened yesterday with the 3y rising 2bps to 3.32%, while the longer-end of the curve 5y-10y declined 3-5bps to 3.72%-4.23% as MYR strengthened 0.4% to 4.45/USD yesterday.

¨      Active corporate activity boosted by financial sector.  Total volume increased more than double to MYR1bn yesterday. About 40% of the trades were focused in financial names – HLB T2s ’24c19 on combined MYR200m trades settling at 4.62-4.72% (-0.5bps to +26bps from previous trade). Other top traded include CMBS 5/17 (-32bps to 3.66%), BLand ’19 (+33bps to 4.77%) and GB Services (-3bps to 4.46%).

¨      Axiata (Baa2/BBB+/NR) crystalizing value in Edotco. The telco conglomerate has entered agreements to sell 34.1% shares in its telecommunications infrastructure services subsidiaries, Edotco, to Khazanah and Innovation Network Corp of Japan for USD600m (MYR2.67bn). The proceed would be utilized to reduce debt (target gross debt/EBITDA of <2.5x) and for potential M&A in the regional towerco space. 

¨      Inflation remained stable in Dec. CPI stayed at 1.8% in Dec-16 (consensus: 1.9%, Nov-16: 1.8%) as food prices increased at slower pace despite the 45.9% increment in cooking oil prices after the removal of subsidies in Nov. Looking ahead, our economists expect inflation to be higher but remain manageable at 2.5% in 2017 (2016: 2.1%) taking into account the higher administered prices and prices of imported goods from weak currency.

¨      Unemployment rate improved to 3.4% in Nov-16, declined 0.1% from the month earlier. Total number of employed labour increased by 0.4% or 64000 in Nov-16 compared to the previous month. Labour force participation rate has also improved to 67.7% (+0.1%).

APAC USD Credit Market:

¨      The USTs edged lower as the December CPI rose 0.3%, in line with expectation; USTs reached session low as Fed’s Yellen hinted at a more hawkish stance. The yield on 2y Treasury note picked up 6.9bps to 1.22%, while the 10y note increased to 2.43% (+10.43bps). The 30y yields again tested 3.00% level, trading at 3.01% at the time of writing.

¨      On the other hand, the S&P 500 rose 0.18% to 2,271.89 points as the gold price fell to $1,204.15/Oz, ahead of Trump’s inauguration tomorrow, 20-Jan.

¨      In Asia, iTraxx AxJ IG was quoted 2.0bps lower at 116.3bps yesterday, leading by State Bank of India, Hutchison Whampoa Ltd, Export-Import Bank of Korea. Lower CDS seen in State Bank of India as there was a huge influx of deposits at the country’s largest lender post-demonetization. IG credit spreads moved in similar direction as the iTraxx AxJ IG tightened to 180.0bps (-2.2bps). HY credit spreads remained steady at 6.6%.

¨      The primary space was active yesterday with total issuance of USD5.3bn. Export-Import Bank of Korea (issue rating: Aa2e/NR/Aa-e) sold three tranches of bonds raising a total amount of USD1.5bn. The financing arm of China Huarong Asset Management, Huarong Finance 2017 Co priced USD1.1bn 3y bond at 3.375% (issue rating: Baa1e/NR/Ae) and USD1.5bn PNC5 bond at 4.500% (issue rating: Baa1e/NR/A-e), vs IPT at 4.875% area.

¨      In the rating space, Moody’s changed Sunac China Holdings Ltd’s outlook from stable to negative following the company’s decision to acquire 8.61% of Leshi Internet, 15% of Leshi Pictures, and about 33.5% of Leshi Zhixin for a total consideration of around RMB15 billion. The rating action reflects Moody’s concern over Sunac’s lack of experience in Leshi’s business, and Sunac’s liquidity position could be affected if further funding needs arise.

SGD Credit Market:

¨      NAB divests Cambridge Industrial Trust. Cambridge Industrial Trust (Baa3/-/-) announced that its two major shareholders National Australia Bank Ltd and Oxley Group have divested their collective indirect interest of 80% to e-Shang Redwood Ltd, a Asian logistics real estate developer.

¨      Capitaland Commercial Trust’s (A3/A-/-) 4Q16 revenue rose 33% to SGD90m mainly due to the acquisition of the CapitaGreen office building, while net income fell 24% to SGD73.5m due to the fall in contributions from joint ventures resulting from the full consolidation of CapitaGreen and the fair value decline in investment properties.

¨      There was a widening in the short-to-mid SOR curve by between 3-4bps, with the 2y and 5y closing at 1.59% and 2.15% even as the SGD mildly weakened by 1% to 1.43/USD.