FW: RHB FIC Credit Markets Update - 12/9/17

 

 

12 September 2017

 

 

Credit Markets Update

                                               

Malaysia IP Surprise at 6.1% YoY; UST Yields Climb

 

MYR Credit Market:

¨         Active govvies trading as volumes reached MYR3.7bn with investors focused in the short-to-belly of the curve (62% of trades). Most actively traded was the benchmark 7y of MYR522m changing hands followed by off-benchmark MGS 9/18 and GII 4/19 of MYR454m and MYR300m. Little change in benchmark yields as the 3y, 5y, 7y and 10y MGS settled at 3.29%, 3.47%, 3.77% and 3.83% respectively. The MYR ended slightly lower by -0.06% overnight to 4.198/USD.

¨         Thin corporate trading; MYR300m changing hands. Trading was largely concentrated in the power segment which rallied strongly. Top trades were Malakoff Power 12/19, 12/20 and 12/20 on combined MYR71m trades with yields narrowing between -3 to -8bps ending at 4.41%, 4.47% and 4.61% respectively. JEV 5/20 and 11/21 tightened -9 and -8bps to 4.30% and 4.46%, while yields of Sarawakhidro 8/19 and 8/26 edge lower by -8 to -12bps.

¨         Malaysia's July Industrial Production rose stronger-than-expected to 6.1% YoY beating expectations (consensus: 5.1%) on the back of the pick-up in manufacturing activities and electricity output. Given the stronger prospects in industrial and external activities, our economics team expects real GDP to grow by 5.3% in 2017 and 5.4% for 2018 from 4.2% in 2016.

¨         RAM ratings assigned final ratings of AAA/Sta to IGB REIT Capital Sdn Bhd's MYR1.2bn First Tranche MTN. The first issuance under IGB REIT Capital's MYR5bn MTN programme with proceeds earmarked for the refinancing of IGB REIT's existing term loan facility. The First Tranche MTN is secured against Mid Valley Megamall (The mall), which is a 5 level retail property with a mezzanine floor, a 2-level basement car park and a 4-level elevated car park with a market value of MYR3.6bn as at end-Jun 17. The mall has a strong and resilient cashflow profile which provides ample credit support to the assigned rating.

APAC USD Credit Market:

¨         Focused away from risk the USTs tumble. The USTs pared back their gains as concerns of the hurricane and N Korea were allayed. Hurricane Irma was less destructive than initial expectations and N Korea did not follow through with its planned ICBM launches over the weekend, pushing up equities and pulling down gold prices. The 2y UST fell +5.7bps to 1.32% while the 10y UST fell +8.0bps to 2.13%. Following the rally in risk assets, the DXY Index rose +0.57% overnight to 91.88 from the annual low recorded the week before.

¨      Asian credit spreads rally. The average Asian ex Japan IG spreads saw spreads improve -3.5bps ending at 172.7bps while the average yield on HY Asian ex Japan was unchanged at 6.53%. The average IG Asia ex Japan CDS narrowed to 76.5bps (-2.2bps). Rallying after the widening of CDS levels the week before, the South Korean complex saw a rally, as Industrial Bank of Korea, Export-Import Bank of Korea, Samsung Electronics, South Korea's sovereign, Hyundai Motor, KT Corp and SK Telecom saw CDS levels fall -2.3 to -9.3bps.

¨         BOC Aviation Ltd (NR/BB/NR) issued two tranches of 5y and 10y bonds totalling USD500m each. The issuances saw strong bids with a BTC of 2.6x and priced at T+117.5bps and T+140bps respectively (IPT of T+140bps and T+165bps each). Sun Hung Kai & Co BVI Ltd (NR) in its issuance of its 5y USD400m bonds increased the issuance by a further USD150m. Newcastle Coal Infrastructure Group (NR/BBB/BBB-), Shinhan Bank (Aa3/A+/A) and Wynn Macau Ltd (NR/B1/B) are currently having investor road shows with expectations of 10y USD bonds, AT2 USD bonds, and callable USD bonds each.

¨      On ratings, Fitch upgrades KT Corp to A/Sta from A-/Sta. This reflects stronger financial profile following the debt reduction plans of the company, ahead of an expected increase in 5G investments from 2019. The disposal of non-core assets, workforce reduction and cost control have brought gross debt down and released positive free cash flow. S&P assigned B/Sta Yihua Enterprise. The furniture manufacturer and distributor saw ratings limited by its market share in the global furniture industry, with lack of brand awareness and differentiation and expansion into healthcare services. Yihua's debt leverage is expected to remain high over the next 24 months, though its large balance of cash and liquid equity investments could provide financial and liquidity cushions.

 

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