Primary Market Remain Highly Active; Markets Await Inauguration

16 January 2017

Credit Markets Weekly

Primary Market Remain Highly Active; Markets Await Inauguration

APAC USD CREDIT MARKETS                                                            

¨      US Treasuries curve flattened, declining 2-3bps WoW as investors were left disappointed by President-Elect Donald Trump’s news conference which dampened market sentiment. UST 2y and 10y yields were last trading at 1.19% and 2.44% respectively as US financial markets take a break on Monday to commemorate Martin Luther King Jr. Day. Asian bond markets traded firm last week, IG credit spreads narrowed marginally at 180.7bps (-0.5bps) while average HY bond yields was similarly lower at 6.64% (-1bps). The iTraxx AxJ IG was a tad wider at 115.3bps (+1bp) led by wider Korean corporate CDS spreads i.e. GS Caltex, EXIM Korea, Korea Development Bank and KEPCO, whereas offset by tighter corporate CDS observed TELMAL, State Bank of India, EXIM China. Elsewhere, Brent oil prices slipped c.-3% WoW to USD55.5/bbl as market participants await for proof that OPEC members and other major oil producers are slashing output in compliance with the oil deal despite reports.

¨      Moving to ratings, Fitch downgraded Parkson Retail Group to a B-/Neg (from B/Neg) due to weaker operating performance as the retailer faces stiff competition from e-commerce while revising the outlook of Indonesia’s Eximbank to BBB-/Pos (from BBB-/Sta) following Fitch’s similar revision to the Indonesia sovereign in Dec-2016. S&P places Intime Retail Group on positive credit watch to reflect potential group support from its controlling shareholder Alibaba Group Holding Ltd following the proposed privatization of the departmental store operator.

¨      Primary market activity remained healthy with steady supply from the financial and real estate space. Moreover, Guangzhou R&F Properties (Ba3/B+/BB) retap the market with USD460m 5nc3 note sold at 5.75%, while the new Korea USD1bn sovereign bond was priced at T+55 compared to IPT at +70-75bps and a USD300m bond issuance from Chinese LGFV, Changchun Urban (Baa1/NR/NR) with a price guidance of T+230bps.

SGD CREDIT MARKETS

¨      Mapletree Investments kicks-off with this year’s inaugural perpetual. There was a lone issuance from Mapletree Investments, a fully-owned subsidiary of Temasek, with a SGD625m Pnc5 at 4.50%, 20bps inside initial price guidance. Quasi-papers such as HDBSP across the curve closed tighter, especially the mid-to-long end, while government-linked papers such as JTCSP and MAPLSP also garnered interest. Pacific Radiance (NR) announced that it had won offshore support vessel charter contracts in the Middle East worth USD68m while Sembcorp Marine (NR) has extended the delivery of a drilling rig until July-2017, the fourth extension on this particular delivery to North Atlantic Drilling Ltd.

¨      Investors to eye upcoming SG econ data to ascertain sustainability. There was a decline in the short-to-mid SOR curve by 14-17bps, with the 2y and 5y closing at 1.58% and 2.15% respectively. Looking ahead, investors will be eyeing the Singapore Dec NODX (17-Jan) and CPI (23-Jan) to ascertain on whether the recent positive data prints were temporal or part of a more sustained recovery. 4Q16 Singapore GDP came in stronger than expected at 1.80% (consensus: 0.3%), which was reflected in the robust Nov NODX and strongest Nov Industrial Production data in 2 years.   

MYR CREDIT MARKETS

¨      15y MGS auction decent, though at a higher yield. The first long dated auction for the year of MYR4.0bn reopening of the 15y 06/31 4.232% saw a bid to cover of 2.503x, though at a higher average yield of 4.786%. The week saw a steepening in the MGS market. There was a rally in the 3Y and 10Y MGS (-4.4bps and -3.9bps WoW respectively). The longer end of the curve however saw yields spike as the 30Y MGS rose close to 9.7bps WoW.

¨      MYR continued to strengthen as foreign ownership of MGS and GII continued to fall. The MYR saw a steady rally over the week, ending at 4.46/USD, a rally of close to 0.22% WoW. December foreign ownership figures saw a continued selloff in the MGS and GII, albeit at a slower pace of MYR 6.0bn (vs. MYR 18.8bn in Nov-16) to MYR190.0bn (or 33.8% of the MYR561.9bn outstanding). The IP and manufacturing sales numbers surprised on the upside over the month. The Nov Industrial Production for Malaysia was stronger at 6.2%YoY (4.2% Oct) led by manufacturing and electricity though dragged by mining improving growth expectations for 4Q16. The same for manufacturing sales which grew 8.2% YoY November compared to 1.9% the previous month.

¨      Corporate bond trading was weaker as MYR3.3bn, with trades more varied among the issuers but were mainly focused on the GG, and the short dated AAA papers. Notable trades in the GG space were DanaInfra (MYR140m) and PTPTN (MYR275m). Notable trades in the corporate space however were SYMPHONY 11/17-11/19 (MYR285m) which yielded at 3.90%-4.10%, KDB 2/17 which fell 93.1bps to 2.88%, AMAN 4/17-4/24 which saw realignments to 3.80%-4.50% (+25.4bps to +30.2bps), Sarawak Hidro 08/23-08/26 (-7bps to +27.4bps) and EKVE 01/29-01/35 (MYR81m).

¨      New facilities for Lucida Capital Berhad, Cahaya Mata, Alliance Investment Bank and Alliance Islamic Bank.  RAM assigned preliminary ratings of AAA/Sta, AA3/Sta and AAA/Sta to the Senior Class A MTN (Issue limit MYR 75mn), Senior Class B MTN(Issue limit MYR13mn) and Stand-Alone Class C MTN (Issue Limit MYR 30mn) of Lucida Capital Berhad with legal maturities up to 5.5 years. The MTN are the result of the securitization of Quill 6, a 24-storey office building, solely leased by SBC Bank Malaysia Berhad with a fixed term loan up to March 2022. RAM assigned AA3/Sta to the MYR2b IMTN program to Cahaya Mata Sarawak (CMS) the dominant cement supplier in Sarawak; withdrawing the rating assigned to its previous MYR1b Sukuk Ijarah program which was not issued. RAM also assigned A1/Sta/P1 to both Alliance Investment Bank Berhad and Alliance Islamic Bank Berhad, the investment-banking and stockbroking and the Islamic banking arms of the Alliance Bank Malaysia Berhad Group respectively. RAM also withdrew the preliminary rating of AAA/Sta for Wego Sdn Bhd’s proposed Sukuk Musharakah program which had lapsed.

¨      RAM reaffirmed LEKAS Junior Sukuk at C2/Sta considering its low likelihood of repayment and the deeply subordinated position of this debt to other debt obligations. The review of the concession for the Kajang-Seremban Highway saw a contraction in long-haul traffic and therefore in revenue. LEKAS is expected to generate an average pre-fnancing cashflow of MYR67mn, sufficient to cover its syndicated term loans but insufficient to cover its outstanding redeemable convertible secured Islamic debt securities (RCDIS). Any repayment under the Junior Sukuk is not permissible until the RCDIS is redeemed.