AIA Upgraded to A2; S&P Downgrades Parkson to B-

28 March 2017

Credit Markets Update

                                               

AIA Upgraded to A2; S&P Downgrades Parkson to B- 

MYR Credit Market:

¨      Govvies moved sideways on quiet trading session. Volume totaled MYR1.9bn in the government bond segment yesterday as more than 70% of the trading activities were concentrate in the short-dated govvies maturing ’18-19. Investors stayed on cautious tone as attention turned towards the much hoped tax reform after Trump’s healthcare bill was called-off last week. The benchmark curve flattened where the 3y rose 2bps to 3.44%, while the 10y was unchanged at 4.07%. The MYR continued the positive momentum to close 0.29% stronger at 4.4135/USD.

¨      Only MYR150m changed hands in the corporate market. CIMB Bank T2 26c21 settled at 5.00% on MYR30m trades, about 41bps below the last traded yield in Jan. Elsewhere, Khazanah ’20 fell 4bps to 4.02% while BGSM ’19 was unchanged at 4.58%.

APAC USD Credit Market:

¨      UST extends rally as the 10y slipped below the 2.40% level to settle at 2.38% on the back of President Trump’s healthcare reform setback, which raised concerns over his ability to deliver his fiscal policy pledges i.e. tax cuts, infrastructure spending, and the dovish tone by Fed Evans, largely disappointing investors who hoped for a faster path of rate increases. On the other hand, the 2y note yields were marginally at 1.25% following the 2y note auction, garnering strong BTC at 2.73x at a high yield of 1.261%.

¨      Asia bond markets remained resilient. Average HY bond yields tightened 2bps to 6.48%, while IG spreads were marginally higher at 174.2bps. Meanwhile, Asian IG CDS spreads rose a tad to 96.5bps. The biggest constituent movements were CNOOC Ltd, Bank of China and Reliance Industries.

¨      Over in primary market, KEB Hana Bank (issue rating: A1/A+/NR) priced USD500m 3y floating bond at 3mL + 72.5bp, against its IPT at 3mL + 90bp area. Its BTC was 1.6x.

¨      In the rating space, Moody’s upgraded AIA Group Limited’s rating from A3/Pos to A2/Sta to reflect its strong financial flexibility and earnings track record. Its financial leverage was at 10.1% at end-November 2016, while its earnings coverage was strong at 38.3x in 2016. Moody’s placed Indika Energy Tbk (PT)’s Caa1 rating on review for upgrade after Indika’s announcement of its refinancing plan. It is viewed as credit positive because the new notes will extend Indika’s debt maturity profile while alleviating liquidity pressures in the near-term.

¨      Elsewhere, S&P downgraded Parkson Retail’s rating from B/Neg to B-/Sta to reflect weak profitability, coupled with elevated leverage. S&P expects the company’s EBITDA margin to decline to 28%-33% for the next 12 months (S&P’s estimate: 33.6% in 2016), while debt/EBITDA ratio will remain high at 9.0x-10.0x in 2017 (S&P’s estimate: 8.5x in 2016)

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