Credit Market Watch: Summary for week ending 28-Jul
· MYR Credit:
Ø MGS yields were range bound amid a lacklustre week, while the 10y yield adjusted higher by 5bps WoW due to new supply. Trading activity in corporate bonds was also muted with total weekly volume down at MYR1.3b (previous week: MYR2.3b).
Ø TNB: Raised MYR2b from a new MYR5b IMTN Sukuk Wakalah programme via 15y and 20y tranches. The deal garnered strong interest with the order book >MYR7.5b or ~3.8x cover. 15y and 20y notes were sold at yields of 4.95% and 5.18% respectively, 3-5bps tighter than the low end of IPG.
Ø Relative value: Tadau’s 2030 paper, rated AA3 and last traded at 5.75%, offers yield pick-up and is about 50bps wide from our fitted AA3/AA- line. We like the lower construction risk of solar plant vs thermal plant, supplemented by the contractor’s experience and a 12% contingency sum set aside. Post completion, Tadau is not exposed to demand risk. We think the yields compensates for risks of lower energy generation than assumed due to solar irradiance variability (weather variability) and lower energy rates to incorporate construction and financing cost savings.
· Asian Credit:
Ø UST yields rose 1-5bps along the 2y10y WoW. In Asian credit, spreads were still holding up well but yields generally shifted higher on weaker UST. On sovereign names, INDONs held up better with yields roughly +/-2bps for the week while KOREA, MALAYS and PHILIP yields rose 2-6bps WoW.
Ø New issues: 1) Azure Power raised USD500m via 5.25NC3 solar green bond at 5.50% from IPT 5.625% on 1.8x book cover. Asset managers were primary subscriber at 95%, while by region it spread across Asia 48%, EMEA 28% and US 24%. 2) ABM Investama (Ba3/-/BB-) raised USD300m via 5NC3 bond at 7.375% from IPT 7.625% on ~3.7x book cover. Investors were 84% fund managers, 9% private banks and 7% banks/insurers/corps, primarily from Asia 82% and US 14%.
Ø Rating change: 1) Guangzhou R&F was put on negative watch by Fitch, following announcement to acquire CNY20b worth of hotel assets from Dalian Wanda as it will slow deleveraging process and cause the key ratios, such as contracted sales/total debt below 0.6x and recurring income/gross interest expenses remain below 0.5x. 2) CK Hutchison’s rating outlook was revised to positive from stable by S&P, citing expectation of strong financial performance and its ability to weather volatility on the back of strong diversification and market position with exposure to defensive sectors. Financial disciple is sound with good records in controlling leverage, citing the rating may be upgraded if debt/EBITDA ratio go downward to 3.0x.
· CDS: EM Asia 5y CDS spread grinded tighter, led by Indonesia -4bps, Malaysia, Philippines and Thailand -3bps each while China -2bps WoW.