Monday, April 17, 2017

Ø Sentiment in local government bonds turned slightly positive in response to BNM’s latest measures, with the MGS yield curve shifting 1-7bps lower WoW and the USDMYR down about 200pips. Corporate bond secondary market, however, remained muted but saw yields broadly lower by 1-3bps WoW.


Credit Market Watch: Summary for week ending 14-Apr
·         MYR Credit:
Ø  Sentiment in local government bonds turned slightly positive in response to BNM’s latest measures, with the MGS yield curve shifting 1-7bps lower WoW and the USDMYR down about 200pips. Corporate bond secondary market, however, remained muted but saw yields broadly lower by 1-3bps WoW.
Ø  UEM Edgenta: Raised MYR250m with 5y tenor IMTNs at a final yield of 4.85%/105bps over MGS. We think UEME is a weak AA- on standalone basis considering its moderate size, thinning margins, tight on OCFDC and rising gearing, but moderated by parental support from UEM Group. On pricing, we estimate a 10bps premium over UEM Sunrise with a view that the latter is more strategically important under ultimate parent Khazanah.
Ø  SPRINT: Outlook on the non-bank guaranteed A+ rated Islamic debt securities was cut to negative by MARC, citing low traffic flow on all 3 highways after the toll rate hike in Oct 2015 if sustained would weaken cash flows while debt obligations are higher over FY3/18 - FY3/20 due to the repayment of government support loans. Tight consumer spending and increasing public transportation are further headwinds to a recovery in traffic flow. A+ rating was affirmed as operating cash flow, which rose to MYR213m in FY3/16, remains sufficient to meet debt obligations (MYR215m due in FY3/18).
Ø  Relative value: MACB 8/20 and Aquasar 7/22 seemed to offer value at 6-9bps wide from our fitted AAA line. Rising tourist arrivals is positive for MAHB’s domestic airports’ growth and retail business. Aquasar is Sarawak government’s financing vehicle.
·         Asian Credit:
Ø  UST curve bull-flattened as markets are cautious on rising geopolitical conflicts and Trump reportedly (but not surprisingly) prefers a low interest-rate policy. The 10y UST yield breaks below 2.20% and Asian currencies are broadly stronger against the USD amid continued reversal of Trump bets that had run ahead of fundamentals.
Ø  Asian USD credit overall traded firmer in yields although spreads were wider: JACI composite +7bps, JACI IG +6bps and JACI HY +8bps WoW. On sovereigns, INDON and MALAYS were the underperformers with yields 3-8bps wider from start of the week while KOREA and PHILIPs were relatively resilient.
Ø  China: 1) Economy: 1Q17 GDP growth rose to a 6.9% YoY pace that beat consensus (6.8% YoY) and is faster than 6.8% YoY in 4Q16 and 6.7% in 3Q16, based on prelim estimates by NBS. Retail sales sustained at 10.9% YoY (4Q16: 10.9%), fixed asset investments (excl. rural) YTD rose to 9.2% YoY while industrial production rebounded to 7.6% YoY (4Q16: 6.0%). 2) Credit growth: New Yuan Loans growth slowed to RMB1.02t in March (Feb: RMB1.17t) but total social financing growth accelerated to RMB2.12t (Feb: Feb: RMB1.15t) due to the increase in non-bank credit, which probably explains the macro-prudential stance by PBOC including the inclusion of WMP in 1Q17 MPA, raising market-based rates and recent CBRC’s rules to regulate banking sector risks.
·         CDS: EM Asia 5y CDS spreads rose 3-8bps on a WoW basis with Korea +8bps, Indonesia +7bps, China and Malaysia +6bps each and Philippines +4bps WoW.

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