Shanghai Huayi Group downgraded to Ba1/Sta by Moody’s; previously on Baa3/review for downgrade. The ratings were slashed to reflect Moody’s expectations of weaker earnings amid the persistent oversupply in the commodity chemicals segment, while high capital spending will keep debt leverage elevated. The group’s adjusted debt/EBITDA is forecasted to stay high at around 6-7x over the next 1-2 years.

30 June 2017

Credit Markets Update

                                               

Treasuries Extends Losses; 2.6x BTC for SGSP USD500m 10y Bonds

MYR Credit Market:

¨      Global trends hit MYR and MGS. With the fall in equities and the weakness in the USD, Asian currencies fared better. The MYR ended the day largely unchanged at 4.2935/USD (+0.09%). The falls in the bond markets of DM has also taken its toll on regional rate curves. The 3y MGS and 10y MGS fell +0.7bps to +6.4bps, ending at 3.36% and 3.90% respectively. The effects of the spiking global yields are expected to continue weakening the MGS yield curves.

¨         Bond trading improves. Bond trading in govvies improved as MYR2.4bn changed hands. A large portion of which occurred in the 20s maturities (MYR613m), surprisingly in off-benchmark maturities. The 22s and 27s also saw strong trades of MYR190m and MYR361m respectively especially in the 5y GII and the newly issued 10y GII. The corporate bond space remained as tepid as the day before with MYR272m trades. Among the major trades occurred in the short-dated Cagamas 08/17s where 55m of trades were done and YTL Power with MYR45m trades.

¨         Sports Toto issues MYR225m. Over in the primary market, Sports Toto Malaysia Sdn Bhd issued MYR225m in total of bonds, in three tranches of MYR60m, MYR40m and MYR125m, with maturities of 3y, 5y and 1y respectively.

APAC USD Credit Market:

¨         Treasuries extends losses especially at the mid-to-belly of the curve with the 10y rising nearly 4bps to 2.26%, while the 2y climbed 1.6bps to 1.37% as markets continue to weaken since ECB’s Draghi and Fed Janet Yellen’s remarks which were read as hawkish by market participants. On economic data, the final 1Q17 GDP was revised higher to 1.4% compared to the earlier reading of 1.2%, while weekly jobless claims were higher at 244k compared to estimates of 240k. Looking ahead, investor’s will eye the May personal income and consumption print which is expected at 0.3% and 0.1% respectively.

¨         Asian credit markets were stable; the iTraxx AxJ IG CDS spreads was slightly higher at 86.2bp driven by Korean credits such as GS Caltex, KT Corp and SK Telecom. IG spreads were firm at 171bp, while HY bond yields rose a tad to 6.65% (1.7bps).

¨         SGSP Australia Assets Pty Ltd (A3/A-/NR) received 2.6x BTC for USD500m 10y bonds priced at T+132bp compared to IPT at T+155bp, mainly taken up by fund managers (54%) and banks/FI (35%). India’s Rural Electrification Corporation Ltd (Baa3/NR/BBB-) sets final guidance for USD 10y green bonds at T+170bp against IPT at T+200bp area. Elsewhere, Modern Land (B2/NR/B+) sold USD130m 1y bond at 6.5%, at IPT area, with reports that Huarong Investment Stock Corp, a subsidiary of China Huarong Asset Management (A3/A-/A) subscribing USD50m of Modern Land’s new bonds.

¨         Shanghai Huayi Group downgraded to Ba1/Sta by Moody’s; previously on Baa3/review for downgrade. The ratings were slashed to reflect Moody’s expectations of weaker earnings amid the persistent oversupply in the commodity chemicals segment, while high capital spending will keep debt leverage elevated. The group’s adjusted debt/EBITDA is forecasted to stay high at around 6-7x over the next 1-2 years.

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