Credit Market Watch: Summary for week ending 4-Aug
· MYR Credit:
Ø MGS yields were little changed with benchmark yield on the 10y MGS settling at 4.00%, up 1bp WoW. Corporate bonds held firm amid better bidding interest and yields were largely unchanged WoW. Activity picked up as trading volume increased to MYR3.3b volume, compared to MYR1.3b previous week.
Ø Ihsan Sukuk Bhd: Sold 7y notes from a second tranche of its SRI sukuk progamme at a yield of 4.60%, raising MYR100m comprised of MYR95m non-retail and MYR5m retail. The funds will be utilized for the deployment of Yayasan’s AMIR’s Trust Schools Programme to around 20 schools.
Ø Banking stats: Loan growth increased to 5.7% in June (May: 5.5%) driven by a pick-up in business lending to 6.5% (May: 5.5%) mainly for working capital purposes, while household lending tapered down to 5.0% (May: 5.1%). Of note, residential mortgages reversed the downtrend in growth seen since Nov 2015 to expand by 8.9% in June (May: 8.6%). Deposits still lag, rising by just 3.5% (May: 3.7%). Our banking analyst kept full-year loan growth estimate of 5.4%, suggesting further expansion from YTD 3.5% annualized rate. Loan approvals have been encouraging, rising for a 4th consecutive month in June (+2.5%). Asset quality remained steady with GIL at 1.64% (May: 1.67%).
Ø Putrajaya Bina Sdn Bhd (PBSB): Subsidiary of Putrajaya Holdings Sdn Bhd (PJH) holds a 28.5y concession for the construction and maintenance of government office buildings in Putrajaya and wants to raise up to MYR1.58b to part finance the development. We think the AAA rating is fair as offtaker is the Malaysian government, yearly concession payments of MYR215.6m are sufficient to address sukuk repayments, buffer from additional management services fees of MYR69.2m/year subject to meeting performance indicators, irrevocable and unconditional financial support from PJH (rated AAA by MARC) and healthy debt service cover of 2.50x minimum and 8.75x on average. Construction is undertaken by Sunway Construction Sdn Bhd, a developer with solid track record, and at a fixed-price, minimizing cost overruns.
Ø Relative value: MEX II 2031 appear to offer value last traded at 5.31% which is 25bps wider than our fitted AA3/AA- line. While the project is currently behind schedule, adequate buffers from contingency sum and projected cash balance of MYR105m moderate impact from the delay. There is no repayment due in the early years and minimum/average DSCRs of the project is at 2.18x/2.77x. The bond is likely penalized for the delay and negative outlook by RAM on related company Bright Focus.
· Asian Credit:
Ø UST yields were 2-3bps lower along the 5y10y WoW. A strong NFP print, with 205K payroll increase that beat consensus (180K) and a solid 2.5% YoY wage growth, pulled the 10y UST yield back up to 2.27% from a low of 2.22%.
Ø In Asian credit, yields overall held steady except for some widening in the non-IG sector. Sovereigns outperformed, with INDON, PHILIP, KOREA and MALAYS about 3-10bps lower in yields WoW.
Ø New issues: 1) Vedanta raised USD1b via 7NC4 bonds at 6.125% from 6.375% IPT on >1.7x book cover. Allocations were funds/insurers/SWFs 73%, banks 11% and PB 16%. 2) eHi, a China-based car services company, raised USD400m via 5NC3 bonds at 5.875% from 6.25% IPT on ~7.5x book cover. Investors were 85% fund managers, 9% private banks and 6% banks/others. 3) Ascendas REIT raised SGD200m via 6y bonds at 2.47% on ~1.38x book cover. Investors were 98% fund managers/banks. 4) Paiton Energy, an Indonesian IPP, raised USD2b via 13y (USD1.2b) and 20y (USD0.8b) bonds at 4.625% and 5.625% yields respectively. Allocations were primarily 78% fund managers, 7% banks and 12% insurers/SWFs/agencies. 5) Future Land raised USD200m via 5NC3 bonds at 5.25% from 5.75% IPT on >11x book cover. Allocation was 86% fund managers, 11% banks/insurers and 3% PB. 6) China Chengtong raised USD500m via 5y bonds at +182.5bps from 215bps IPT. Investors were primarily 52% fund managers and 38% banks.
Ø Rating change: 1) Gajah Tunggal’s rating may be upgraded as both Moody’s and S&P previously indicated that a successful bond issuance, which was priced last week, help alleviate near-term refinancing risks. 2) Hutchison Port’s rating outlook was raised to positive by S&P after the recent outlook increase on its ultimate parent CK Hutchison Holdings, considering the strategic importance of the former.
· CDS: EM Asia 5y CDS spread overall tightened 1-2bps, except for Korea which widened 3bps WoW.