14 April 2017
Credit Markets Update
BNM Liberalisation of Hedging Policies, Allows Short-Selling of MGS
MYR Credit Market:
¨ Local govvies and MYR ended firmer as BNM liberalizes hedging policies, better appetite for 5y New GII 9/24. The new 5y Islamic benchmark attracted good BTC of 2.77x at average yield of 3.948%, relatively strong demand compared to the average 1.8x BTC for the previous 4 auctions. Sentiment was good yesterday as the MYR strengthened 0.39% against the USD to 4.4115, after BNM announced that registered non-bank entities will be allowed to hedge their underlying assets as well as an additional 25% of FX exposures, effective 2-May. The local govvies ended firmer across the curve on improved trading activities of MYR2.6bn. MGS curve shifted 2-3bps lower as the 3y fell 3bps to 3.46%, while the 10y declined 2bps to 4.10%.
¨ Regulated short-selling introduced. BNM also will allow short selling of the MGS&GII with at least MYR2bn outstanding, effective 2-May, to promote liquidity of the bond market, facilitating better price discovery process and correction in any pricing anomalies. The short-selling transaction must not exceed 12 months from the trade date and the short position must not exceed 10% of the outstanding nominal amount of each issue.
¨ Trading volume totaled MYR341m in the corporate market. Yields increased in the top 3 traded bonds – Rantau ‘19 rose 1bp to 4.04% on MYR60m trades, Maybank Islamic 4/24c19 saw MYR50m spiked 8bps to 4.46% while MDV ‘20 increased 3bps to 4.04% with MYR40m dealt. Elsewhere, JEP ’22-31 ended flattish at 4.56-5.07% (unchanged to -1bp) on combined MYR50m trades.
APAC USD Credit Market:
¨ UST settled flat ahead of the Easter Holiday break after tumbling for most of the week mostly on the back of rising geopolitical risk. The 2y and 10y ended at 1.20% and 2.24%, as markets are closed on Friday for the Easter break. Overnight, US equities trend lower after the US dropped the largest non-nuclear bomb in Afghanistan.
¨ Asian Credit protection cost spiked another 1.8bps to 100.8bps driven by wider CDS credits spreads seen across the board. The largest underperformer in this space was Reliance Industries (+11bps), followed by Telekom Malaysia (+7.5bps) and IDBI Bank (+4bps).
¨ Fitch, Moody’s and S&P assigned first-time LT rating of A, A3, A- to Beijing Gas Group Co Ltd respectively. The rating agencies assigned the respective ratings to reflect the company’s strong credit and financial profile due to increasing gas sales. Fitch expects its FFO net leverage to stay below 2.5x over the next three years, while S&P expects Beijing Gas’ debt-to-EBITDA ratio to be less than 1.5x over the next 12-24 months. S&P raises Sinopec Group’s LT rating from A+ to AA- to reflect that the company will continue to have strong operating cash flows as a result of higher oil prices. S&P assumes Brent oil price will average USD50/bbl in 2017 and 2018 (USD44/bbl in 2016).
¨ Moody’s revised Yanzhou Coal’s outlook from negative to stable, affirming its rating at B2. This is to reflect Moody’s view that the average thermal coal prices in China and Australia will be higher in the next 12-18 months, which will support the company’s EBITDA. Its EBITDA is expected to increase by 22% to RMB9.7bn in 2016, while its debt/EBITDA ratio is likely to improve to 7.5x-8.0x in 2017 (9.0x-9.9x in 2014-2015).