Valuecap Priced 5y at 4.441%; New benchmark 7y MGS

29 March 2017

Credit Markets Update

                                               

Valuecap Priced 5y at 4.441%; New benchmark 7y MGS 

MYR Credit Market:

¨      7.5y New MGS 9/24 in focus. The government announced the final auction of the month with tender size of MYR3bn (in addition to MYR1bn to be privately placed). The WI for the new benchmark was seen quoted at 4.10/3.95 yesterday. Secondary flows in the govvies market stayed muted with MYR1.3bn changing hands yesterday. The MGS curve steepened as 7y and 10y rose 3bps to 4.02% and 4.10% respectively, while the MYR held firm at 4.4135/USD.

¨      Corporate market started the week on active tone. Volume totalled MYR755m yesterday. BGSM 12/17 was the most active on MYR120m trades, settled 5bps lower at 4.21% after declining 10bps last week. Yields for toll road names such as PLUS ’19-25 (4.08-4.42%) and MEX ’24-25 (4.91-4.96%) rose 3-21bps, although LDF3 ’29 realigned 16bps lower to 4.98%. GG bonds ended mixed as Prasarana ’23-26 ended flat to +9bps to 4.21-4.37%, while PASB ‘19 fell 7bps to 3.83%.

¨      Over the primary market, Valuecap (NR) priced MYR1bn 5y at 4.441%, or 11bps lower than the previous similar issuance in Dec-16. Valaucap, which is equally owned by Khazanah, PNB and KWAP, has issued MYR6bn since 2015 (including the newly priced MYR1bn) from its MYR20bn redeemable unsecured bond programme with weighted average coupon rate of 4.32%. The proceeds from the issuance shall be utilised to invest in securities of companies listed in Bursa Malaysia.

APAC USD Credit Market:

¨      UST reversed gains following the set of strong US economic data. Mar consumer confidence surged to 125.6 (consensus: 114), while the Jan S&P/Case Shiller Index rose 5.7% YoY (consensus: 5.6%). Moreover, Fed Fischer largely reiterated the case for two more rate hikes in 2017, largely taking a less hawkish stance. 10y UST yields rose 4bps to 2.42%, while the 2y note increased 5bps to 1.30%. Elsewhere, the USD34bn 5y note auction, garnering robust BTC at 2.37x, with the benchmark 5y UST settling at 1.96%. Separately, Brent rose 1.2% to USD51.3/bbl as reports emerged of production disruptions in Libya.

¨      Firm APAC credit markets. Average HY bond yields narrowed 1bp to 6.47%, the though IG spreads held steady at 174.3bps. Furthermore, Asian IG CDS spreads edge lower to 95.6bps led by Hutchison Whampoa, ICICI Bank and CapitaLand Ltd.

¨      The primary market was relatively quiet yesterday. Yango Cayman Investment (NR), guaranteed by Fujian Yango (Unrated), a Chinese conglomerate with interests in real estate, healthcare, FI and education priced USD300m 3Put2 bond at 6.85%, against its IPT at 7.25% area. In the pipeline, Korea Resources (issuer rating: A1/A+/NR) held investor meetings and hired banks for USD bond issuance.

¨      S&P upgraded Japfa Comfeed Indonesia Tbk’s B+ rating to BB- on successful refinancing as the transaction will lengthen Japfa’s debt maturity profile. Its leverage ratios have strengthened as well. S&P estimates that the company’s funds from operation-to-debt ratio was approximately 50% in 2016 (13% in 2014).

¨      Elsewhere, Fitch downgraded Red Star Macalline’s rating from BBB+ to BBB to reflect Fitch’s expectation that the company’s leverage is likely to increase in 2017. The increase in net debt/recurring EBITDA to 4.0x is likely to result from higher capex and slower-than-expected EBITDA growth.

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