8 August 2017
Credit Markets Update
Malaysia FX Reserves Up MYR300m; Gajah Tunggal Upgraded
MYR Credit Market:
¨ MGS little changed while MYR weakens; The MYR weakened to close at 4.2845/USD (-0.15%) along with other EM Asia currencies, given the recovery in the USD amid improving numbers. Govvies yields, meanwhile, were mostly unchanged. The MGS 3y rose 1.2bps to 3.29% while the 10y was marginally tighter at 4.38%.
¨ Muted trading activities in the govvies segment; Investors focused in short-tenure bonds. Trade volume totalled MYR1.9bn with trades mostly concentrated in the shorter end of the curve (61%). MGS 9/18, 11/19 and 3/20 accounted for over 37% of total trades done for the day. Apart from that we also observed MYR207m and MYR144m trades for MGS 7/21 and the benchmark MGS 9/24.
¨ Moderate trading activity in the corporate market with MYR374m traded yesterday. Top traded were quasi-government names as PASB recorded MYR105m trades. Both PASB 2/23 and 6/24 were unchanged at 4.12% and 4.28%. PTPTN 3/32 was sideways at 4.90% on MYR50m dealt. Elsewhere, Putrajaya 12/21 jumped 6.5bps to 4.27%, whereas MAHB Pc24 settled 2.2bps lower to 4.91% on MYR40m trades.
¨ BNM reported forex reserves improved MYR300m for end-July to USD99.4bn which is sufficient to cover 7.9months of retained imports and 1.1x of short-term external debt. Elsewhere, investors will be focusing on the upcoming foreign reserves data to be announced later today.
¨ MARC affirmed Celcom Network Sdn Bhd's (CNSB) MYR5bn Sukuk Murabahah Programme at AA+is; outlook remains on negative. The outlook remains on negative due to the lack of improvements in its credit metrics, while CNSB's financial profile could deteriorate further amid the increasingly challenging environment given the deteriorating operating environment for telco players
APAC USD Credit Market:
¨ Treasuries yields saw a respite. The DXY Index fell to 93.43 (-0.12%). The 2y UST remained unchanged at 1.35% while the 10y rallied to 2.25% (-0.9bps). The comments of Fed President Bullard, who expressed his comfort with the current short-term interest rates, while Fed President Kashkari expressed doubt of worker shortages exists up to wage rises are palpable, continue to endorse the current views that the coming meeting should not see a rate hike. A report on total consumer credit showed an annual pace of growth of 3.9% in June. This was down from May's growth rate, which was the strongest in six months. Economists are watching the consumer closely as they expect spending to drive growth in the remainder of 2017. Brent prices settled 0.1% lower at USD52.37/bbl as investors' awaited news from a two-day meeting of the Organization of the Petroleum Exporting Countries in Abu Dhabi%.
¨ Asian CDS compress led by South Korean names. The Asian IG CDS continued to compress to new lows at 79.7bps (-0.3bps). The rally was led by major Korean names such as POSCO, Industrial Bank of Korea, Samsung Electronics, Export-Import Bank of Korea, all saw CDS levels compress -0.55 to -2.1bps. This occurs despite the recent falls in Korean equities and the increased rhetoric by North Korea following increased sanctions by the UN on the country. South Korea's CDS also compressed -0.33bps. On the flipside names such as Kookmin Bank, Woori Bank, SK Telecom and KT Corp widened +1.3-1.78bps.
¨ Primary markets saw Export-Import Bank of India (Baa3/NR/BBB-) issue USD400m 5y FRNs at 3mL+100bps vs IPT 3mL+115bps. This was the first ever Formosa bond by an Indian issuer. Agile Group (Ba3/BB/NR) returns after 2y to issue USD200m of 5nc3 subdebt priced at 5.125% vs IPT 5.75%. The proceeds will be used to partly refinance its USD500m notes callable in Sep. Vedanta (B3/B+/NR) accepted USD522.5m and USD 229.8m of its 2019 and 2021 papers, following its USD1bn issuance the week before. In the pipelines, Lotte Shopping Holdings (Baa3/NR/BBB-) is planning possible USD guaranteed bond issuances over the week while China Huiyuan Juice (B1/NR/B+) is currently meeting investors for a USD bond issuance.
¨ S&P upgraded Gajah Tunggal to B-/Sta from CCC- removing it from developing credit watch, a week after it priced USD250m of bonds. S&P opines the company's recent bond placement, and committed bond facilities alleviates the refinancing risks associated in calling USD500m senior secured bonds maturing in Feb 18. Gajah Tunggal's credit profile remains constrained by its modest size as a tire manufacturer, and margin sensitivity to raw material prices and currency fluctuations. Capital spending requirements and plans to expand its export markets are expected to suppress cash accumulation and suppress cash flow adequacy ratios over the next two years.