FW: Credit Market Watch: Summary for week ending 13-Oct

 

 

Credit Market Watch: Summary for week ending 13-Oct

·         MYR Credit:

Ø  MGS yield moved sideways in a light trading week absent drivers for either direction. Yield on the 10y MGS was down by 1bp while the 15y was up 2bps WoW. In corporate bonds, quasis remained better offered possibly due to a sizeable supply in the pipeline but overall yields traded flat WoW. Trading volume totaled MYR2.4b vs MYR1.9b previous week.

Ø  SPG: Southern Power Generation (SPG), rated AA-, raised MYR3.665b from multi-tranche sukuk in tenors of 4.5y to 18y. With TNB as majority shareholder and limited supply of new IPP papers, demand for SPG was strong printing a cover ratio of >4x. Final pricing came below the IPG range and was about 10-13bps tighter than the lower end of IPG. 5y was priced at 4.73%, 10y at 5.02% and 15y at 5.37% with spread over MGS of 114bps, 111bps and 102bps respectively. Relative to the Jimah East Power (JEP) curve, which is a 70%-TNB owned IPP, SPG still offers value with 17-24bps pickup along the 5y15y and 9-16bps pickup at the longer end. Proceeds will be used to fund the construction of a 2x720MW combined cycle gas-fired plant in Pasir Gudang, Johor in an 80:20 debt:equity mix. SPG is 51%-owned by TNB and the other 49% is held by SIPP Energy Sdn Bhd, which is 70%-owned by Datuk Daing A. Malek Daing A. Rahaman, a member of the Johor Council Royal Court. On credit metrics, the IPP’s strengths include 1) strong shareholder support given TNB’s undertaking to maintain minimum 51% stake and both shareholders’ undertaking to fund any shortfall in capital contribution, 2) reliable cash flow from 21-year PPA with no demand or fuel price risk, and 3) decent debt coverage with min and average FSCR of 1.72x and 1.90x respectively.

Ø  Econs: Industrial production expanded at the fastest pace in more than 2 years in August at 6.8% YoY (July: +6.1%) driven by the continued strength in manufacturing and growth in mining. Distributive trade growth may have moderated in August to 7.9% YoY (July: 9.4%), retail trade growth was firmer at 12.4% YoY vs 2Q17’s 11.5%. These points to sustained economic growth momentum in 3Q17.

Ø  Relative value: MACB 2020 last dealt at 4.22% and 5bps wider than our AAA fitted curve. SPG offers relative value and was priced with pickup over the JEP curve as detailed above.

·         Asian Credit:

Ø  UST curve bull-flattened along the 2y10y with 10y yield down 9bps WoW. Trump’s move to decertify nuclear deal with Iran raises fear of geopolitical conflicts on the heel of the recent spat with North Korea. Certainly not helping was the CPI print last Friday which trended softer, but only marginally (headline/core CPI at 2.2%/1.7% YoY compared to consensus of 2.3%/1.8%).

Ø  Asian credit spreads grinded tighter for another week with JACI composite -2bps, JACI IG -2bps and JACI HY -1bps WoW. Regional sovereigns tracked the UST strength, with INDONS and KOREA yields 3-8bps lower, MALAYS yields 9-10bps lower and PHILIP yields between unchanged and 5bps lower WoW.

Ø  Press Metal Aluminium: Plans to issue USD bonds expected to be rated Ba3/BB- by Moody’s/S&P with roadshow from 17th October in Singapore, Hong Kong and London.

Ø  China USD bond: Reportedly China was aiming for 26th Oct to price its USD bonds, the first since 2004 as currently there are only two tranches outstanding totalling a mere USD200m. Target issuance size will be USD1b each for 5y and 10y tenors. Despite recent S&P downgrade on China’s rating, which is now aligned with Moody’s/Fitch at A3/A-, market expects the new USD bonds to be priced inside of KOREA which is rated 3-4 notches higher at Aa2/AA/AA-.

·         CDS: EM Asia 5y CDS spread movements were mixed, with China, Indonesia and Thailand 1-2bps tighter, Malaysia flat while Korea and Philippines 1bp wider WoW.