Thursday, May 18, 2017

¨ On to ratings, S&P downgraded KWG Property’s rating from BB- to B+ to reflect S&P’s

18 May 2017

Credit Markets Update
Malaysia CPI Moderated in April
MYR Credit Market:
¨      MYR falters despite USD concerns. The MYR began to weaken yesterday where it fell -0.05% to 4.3235/USD despite the strong political concerns arising in the US. As pressure continue to mount on the administration fumbles and markets price in a possibility of major repercussions on the US President. A risk-off sentiment has been seen globally leading to a selloff in most Asian currencies, as safe haven currencies outperforming. The MGS curves reflected this pause, as the Malaysian govvies fell across the board. The 3y MGS yields spiked 7.2bps to 3.30% whereas the 10y MGS fell 3.2bps to 3.93%.
¨      Trading of MGS/GII fell once more to a mere MYR2.3bn yesterday. Trading was largely concentrated on the longer end of the curve as the 2024 maturities seeing the most interest of MYR479m followed by the 2027 and 2033 maturities. The corporate bond market remained strong with MYR435m reported. Trading was led by GG issuances as DANAINFRA 03/27s and the recently issued PTPTN 03/27s trading at 4.39% (-16.9bps) and 4.452% (+0.2bps) respectively.
¨      CIMB Issues MYR3bn bonds. CIMB Bank issued three tranches of AAA-rated bonds with maturities of 5y, 7y and 10y; totaling MYR1bn, MYR1.2bn and MYR800m respectively. The CIMB 05/22s were issued at 4.40%, whereas the CIMB 05/24s and CIMB 05/27s were issued at 4.60% and 4.70% respectively.
¨      CPI moderated in April. April’s CPI numbers moderated to 4.4% YoY from 5.1% the previous month, largely led by a reduction in transport cost pressures on YoY inflation (16.7% YoY in April from 23% in March). RHB expects the headline inflation to end the year between 3-3.5% in 2017 from 2.1% in 2016. Core inflation has remained at 2.5% for the third consecutive month
APAC USD Credit Market:
¨         UST bull flattened on the back of risk-off sentiment, sparked by political turmoil in the United States. President Trump pressured former FBI head Comey to end an investigation, he also disclosed highly classified information to Russia’s Foreign Minister Lavrov. The probability of June rate hike tumbled to 82.5% from 100% a week ago. 2y UST note lost 5.3bps to 1.25%, while 10y bond yield dipped to 2.22% (-10.1bps). S&P 500 index was lower by 1.82%. The U.S. Dollar Index extended loss for the third session of the week, closed at 97.58 (-0.54%).
¨         Asian credit market remained stable. The iTraxx AxJ IG index picked up 1.3bps to 90.7bps, with higher CDS spreads seen in the banks (i.e. Bank of China Ltd, China Development Bank and Industrial Bank of Korea). The IG space widened by 2bps to 175bps; average HY credit yields trickled down to 6.55% (-1bp).
¨      Moving to primary markets; BOC Aviation (issue rating: NR/BBB+/A-) priced USD500m 5y bond at T+130bp area, its IPT was at T+155bp area. In the pipeline, Tower Bersama (Ba3/BB-/BB-) planned to offer USD500m global bonds to refinance USD300m bonds maturing in 2018.
¨      On to ratings, S&P downgraded KWG Property’s rating from BB- to B+ to reflect S&P’s view that the company’s leverage is likely to remain elevated for the next 12-18 months. Leverage is expected to weaken to 9.6x in 2017 (5.2x in 2015) as a result of domestic bond issuance and large land acquisitions. S&P also lowered Yuexiu Property’s rating from BBB- to BB+. This is premised on Yuexiu’s elevated debt-to-EBITDA ratio, which is expected to stay at 8x-9x in 2017-2018 (2015: 8.2x, 2016: 9.4x) due to rising land purchases and lower sales. Elsewhere, Moody’s placed United PV’s Ba3 rating on review for downgrade following the company’s proposal to involve in hydropower business, on top of its solar power business, which would result in execution risk and high capex. To recap, United PV planned to acquire China New Energy Holdings (HK) Limited for HKD1.2bn.

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