FW: RHB FIC Credit Markets Update - 16/8/17

 

 

16 August 2017

 

 

Credit Markets Update

                                               

FOMC Minutes In Focus; KEV Outlook Revised to Stable

MYR Credit Market:

¨         Benchmark yields mixed ahead of FOMC minutes. Asian EM currencies continued to sluggish while market participants wary of the positive economic data from the US and the upcoming release of the US FOMC minutes. The MYR weakened to 4.2955/USD (-0.05% overnight). The govvie yields saw a mixed performance. The new benchmark 3y MGS 2/21 yields was at 3.42%, while the 10y MGS inched slightly tighter to 3.98% (-0.5bp).

¨         Total govvies trading amounted to MYR2.5bn; Investors' focus was on the shorter-dated govvies. 54% of trades were focused in the shorter-end. The top traded was the MGS 10/17 on MYR517m, followed by the MGS 11/21 and 9/22 on combined trades of MYR431m settling at 3.63% (-2.3bp) and 3.77% (+1.1bp) respectively. Corporate bond flows remain soft though doubling to MYR441m from MYR243m yesterday, broadly led by BPMB 9/21-3/32 (AA3) with combined trades of MYR60m, at yields of 4.01%-4.94% (+0.3bp to -1bp). RHB T2 11/22c17 rose 3.1bps to 4.17% on MYR50m dealt, whereas FRL 10/21 (AA2) climbed 7bps to 4.72%.

¨         Matrix Concepts printed MYR100m 6.5% 5y unrated bonds from its existing MYR250m 7y sukuk wakalah programme. The issue was printed at +274bps spread over the corresponding GII.

¨         Over to ratings, MARC revised Kapar Energy's outlook to stable from negative, affirmed at AA+_is. The revision on KEV's rating, which operates and owns the Kapar Power Station (KPS) was largely premised on the improvement of its cash flow and liquidity position, while also considering the support received from TNB (60% owned) through the implementation of periodic resetting of KPS outage rates which translated to an improvement in operational performance. KEV's FSCR stood at 2.34x at Jan 17 (Jan-16: 2.10x), while MARC forecasts that KEV's minimum and average FSCR with cash will stand at 1.41x and 1.90x respectively.

APAC USD Credit Market:

¨         Better economic data and reduced geopolitical concern continue to pressure yields upwards. Tensions between the US and North Korea abated with the reported decision not to launch a missile at Guam. Continued easing of geopolitical concerns met better than expected retail sales data at 0.6% MoM July (0.4% consensus) and the Empire Manufacturing index which rose to 25.2 in Aug (10.0 consensus), further pressuring the UST. Yields shifted upwards, led by the long end of the curve as the 2y UST rose +2.8bps to 1.35% and the 10y UST rose +5.4bps to 2.27%. The USD continued to rally as the DXY index gained another +0.47% to 93.85.

¨         Asian CDS begins to fall, as yields spike, credit HY stubborn. Again, despite the fall in USTs, the spreads in the Asian HY credit index remained at 6.76%, whereas the Asian IG spread continued to tighten -1.0bps to 176.2bps. The Asian CDS started to fall once more reversing the trend since the middle of last week now at 84.1bps (-3.2bps). The rally was led by sovereigns and sub-sovereigns, as Indonesia, South Korea, Malaysia, KDB, EXIM Bank Korea, Telekom Malaysia and China Development Bank all rallied -1.9 to -4.4bps. Hyundai, and OCBC saw CDS levels widen +3.1 to +3.7bps. The former on the weak sales following China's boycott and narrowing operating margin.

¨         Primary markets remained quite as only National Australia Bank Ltd (Aa3/AA-/AA-) issued USD50m zero-coupon 30y bonds callable at 5y, 10y, 15y, 20y and 25y intervals. In the pipelines, CK Infrastructure Holdings Ltd (NR/A-/A-) is expected to guarantee an issuance by Phoenix Lead Ltd (NR/BBB/NR) of USD denominated Pnc5 bonds with an IPT of 5%.

¨         Over in the rating space, Moody's assigns A3/Sta to CSL Ltd, to reflect its position as the market leader in the plasma derived therapy industry, good collection network, low cost structure and geographical dominance, in addition to the company's conservative financial policy. Noble Group Ltd was downgraded once more by both S&P and Moody's to CCC-/Neg and Caa3/Neg respectively. S&P opines that non-repayment risk occurs in the next six months, whereas Moody's sees the prospect of full recovery of principal and interest to be low for unsecured bondholders at event of default.

 

 

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