LPPSA to issue MYR3.25bn; Malaysia Posts Strong Export Number

6 April 2017

Credit Markets Update

                                               

LPPSA to issue MYR3.25bn; Malaysia Posts Strong Export Number

MYR Credit Market:

¨      LPPSA (GG) to issue MYR3.25bn IMTN. The financier for civil servant housing plans to issue MYR3.25bn IMTN on the 17-Apr, separated over 6 tranches ranging 5y-30y at 4.17-5.22% (MGS + 36-46bps), or 32-57bps above the comparable issuance last year. This is the second issuance from the issuer, previously issued MYR4bn in Sep-16.

¨      Corporate market stayed quiet. Volume totalled MYR193m with only few names traded. BGSM ’18-23 crossed mixed at 4.45-4.95% (-4bps to +5bps) on combined MYR40m trades. Gain in other top traded bonds yesterday – UEMS ’18 fell 4bps to 4.56%, TBEI ’27-28 inched 3-4bps lower to 4.83-4.92%, while TTM SPV ’21 realigned 29bps lower to 4.21%, from its last trade in 2011.

¨      Govvies moved sideways. Government bonds ended flattish before Trump-Xi Jinping meeting this week and the FOMC minutes overnight. A total of MYR3.2bn changed hands yesterday where activities remained focused on the short-dated bonds. Benchmark curve closed near to previous level with the 3y and 10y MGS were unchanged at 3.52% and 4.12% respectively. The MYR also settled flat at 4.431/USD despite the strong trade numbers yesterday.

¨      Exports expanded in the quickest pace in almost 7 years. Exports increased 26.5% YoY in Feb, the strongest growth since 2009, on the back of recovery of global trade and commodity prices. Trade surplus widened to MYR8.7bn in Feb, from MYR4.7bn in the previous month. Our economist expects a wider trade account surplus this year will contribute to improvement in current account surplus in 2017 to MYR33.1bn (2.6% of GDP), from MYR25.1bn in 2016 (2% of GDP).

APAC USD Credit Market:

¨      The UTSs rallied yesterday following the release of FOMC meeting minutes revealing that the Fed plans to shrink its USD4.5trn balance sheet later this year. The minutes also showed that some Fed officials are worried about the overvaluation of stock market, causing some selling in equities and flight-to-quality in USTs. 2y tightened by 1.8bps to 1.23%, while the 10y note slipped to 2.34% (-2.5bps). The S&P 500 index was lower by 0.31%, while the DXY index was a tad higher at 100.56 (+0.02%).

¨      The iTraxx AxJ IG widened marginally to 94.8bps (+0.2bps), with Indonesia, Malaysia and Philippines as the underperformers in the index. The IG space declined to 174.3bps (-1.2bps) while the HY credit spreads remained largely unchanged at 6.42%.

¨      The primary market was active yesterday, with a total issuance of USD4.6bn. Sinopec Group Overseas Development (issue rating: Aa3/NR/NR) raised USD3.4bn across four-part bonds (Refer to Table 2). Korea South-East Power (issue rating: Aa2/AA/NR) issued USD300m 3y bond at T+97.5bp (IPT: T+110bp). JSW Steel (Ba3/NR/BB) priced USD500m 5y bond at 5.25% (IPT: 5.5%).

¨      Over in the rating space, Moody’s placed Barminco Holdings’ B2 rating on review for upgrade on the back of the company’s improved credit metrics. Moody’s expects the ratio will improve to around 3.0x-3.3x over the next 12-18 months (2016: 4.1x), supported by increase sales from new contract wins. Elsewhere, S&P revised Li & Fung’s outlook from stable to negative (affirming its rating at BBB+) following weak operating results in 2016. S&P expects its earnings will fall by 2%-4% in the next 12 months, compared to 8.3% drop in 2016.

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