Lafarge Cement Revised to AA2/Neg; Asian Bonds Widened

29 June 2017

Credit Markets Update

                                               

Lafarge Cement Revised to AA2/Neg; Asian Bonds Widened

MYR Credit Market:

¨      MYR falls while MGS resilient. As falls in global oil prices continue to weight on investors’ sentiment, and as interest rates continue to spike up globally, Asian currencies and bonds continue to weaken. The MYR was one of the better performers ending at 4.2972/USD, losing close to -0.22%. Despite the weakening in global yields and following a long hiatus in trades, the 3y MGS rallied -3.7bps to 3.29% while the 10y MGS rallied -0.4bps to 3.90%.

¨         Bond trading weak coming off a long weekend. Coming off a long weekend on a short week, trading was as expected, weak. Trading in Malaysian government bonds fell all the way to MYR1bn trades. Trading in corporate bonds were also tepid, as a mere MYR226m changed hands. Most of the names were infrastructure and financial names. The short dated names of MBSB 10/17, CAGAMAS 09/17 and 03/18, which saw a total of MYR20m, MYR20m and MYR10m trades each. YTL POWER 27s saw MYR25m traded at 4.97% (+0.2bps) while ALDHAZAB 06/23 saw MYR20m transacted at 4.80% (-6.8bps).

¨         RAM revises Lafarge Cement downwards to AA2/neg and reaffirms at IJM AA3/Sta. RAM Ratings has revised the outlook of Lafarge Cement Sdn Bhd sukuk program to AA2/neg from AA2/Sta. This reflected RAM’s concerns on subdued selling prices from slower demand and industry excess capacity, resulting in pre-tax loss of MYR63.45m 1Q FY Dec 2017. RAM Ratings reaffirmed IJM Corporation Berhad’s sukuk at AA3/Sta despite the lower contributions from the infrastructure segment and expanding debt load to fund property development projects. RAM’s reaffirmation is based on the diversified business segments, and the fact that it excludes some of the additional debt borne, which are concession-related, identified to the operating entity involved, and therefore should have no recourse to the holding company.

APAC USD Credit Market:

¨         Longer end UST on the rise; 10y rose 2.3bps to 2.23%, while 2y UST slipped to 1.35% (-1.6bp). Apart from the hawkish comments by the ECB’s Mario Draghi, investors also took cues from BOE’ Governor’s Mark Carney as he hinted that interest rates could rise over the coming months. DXY index declined 0.17% to 95.845, while Brent oil prices rose yet again to USD47.3/bbl (+1.41%).

¨         Asian bond markets mixed; IG credit spreads tightened 1.59bps to 170.9bp given the weaker sentiment amid the ECB’s tapering signals, whereas average speculative bond yields jumped 7bps to 6.64%, driven possibly by the large influx of HY supply. Credit protection cost via the iTraxx AxJ IG was quoted wider at 86.1bp (+0.6) mainly led by wider CDS spreads in ICICI Bank (+5bps), CapitaLand (+3.3bps), and PCCW-HKT Telephone Ltd (+2.6bps).

¨         Primaries were active over the past two days; strong interest in IG credits. Korea Development Bank (Aa2/AA/AA-) sold USD300m 5y green bonds at 3mL+72.5bp against IPT at 3mL+90 area; BTC of 2.17x. Swire Pacific (A3/A-/A-) received 3.33x BTC for USD300m 7y bonds at T+105bps (IPT at 125bp area). China Gold International (NR/BBB-/NR) via its subsidiary Skyland Mining (BVI) Ltd (NR/BBB-/NR) received USD1.4bn orders for USD500m 3y bonds at T+185bps or 25bps inside of IPT. China State Constructing Engineering Corp (A2/A/A) raised USD1bn in 2-part bond deal – i) USD500m 5y at T+112.5bp (BTC: 3.8x) and ii) USD500m 10y at T+135bp (BTC: 2.6x). Elsewhere, Chinese internet giant, Baidu Inc (A3/NR/A) tapped the markets for USD1.5bn across two tranches – i) USD900m 5y at T+118bp (IPT: 140bp) and ii) USD600m 10y at T+145bp (IPT: 165bp area).

¨         In the high yield segment, Shangdong Ruyi Technology Group (issue rating: B3/B-/NR) sets final guidance for USD300m 5nc3 bonds at 7.75-7.875% against IPT at 7.875% area. Melco Resorts (Ba3/BB-/NR) tap USD350m 6/25’ at 100.75 compared to IPT at 100.25. Greenland HK Holdings Ltd (Ba2/BB-/NR) sold USD200m 4.5% 1y bonds at par (IPT: 4.5%). Lastly, Fantasia Holdings Group Co Ltd (issue rating: B3/B/NR) sold USD300m 5nc3 bonds at 8% or at IPT area; BTC of 1.67x.

¨         Over to ratings, S&P revised China Resources Gas Group Ltd’s outlook to positive; affirmed at BBB+. Mainly driven by the better-than-expected performance over 2016, supported by volume growth in gas sales, stable margins and a disciplined capex and acquisition strategy. Furthermore, the company stands to gain from the Chinese government’s efforts in the promotion of natural gas usage especially as a replacement for coal. FFO/debt is forecasted to be in the range of 0.41-0.52x in 2017-2019.

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