FW: RHB FIC Credit Markets Update - 10/10/2017

 

10 October 2017

 

Credit Markets Update

                                               

Thin Trading; China CITIC Bank Revised to Stable by Moody’s

 

MYR Credit Market:

¨      The MYR closed stronger at 4.232/USD (+0.12%) in-line with other EM Asian currencies amid the regional holidays and fuelled from last week’s positive economic print and upward GDP revision by the World Bank. MGS 3y and 10y continue to rise approximately 2bps, touching 3.40% and 3.92% with market participants turning their attention to the upcoming release of the September FOMC meeting minutes.

¨      Thin flow in secondary market amid regional holidays. Quiet govvies trading flows with total transacted at a mere MYR783m. Interest was seen in the shorter-end of the curve especially in off-benchmark issues; MGS 7/19 recorded MYR200m trades (-1.4bp to 3.31%), followed by MGS 9/18 with MYR169m transacted (-18bps to 2.94%). Benchmark 3y GII on MYR110m trades gained nearly 1bp to 3.50%.

¨      Corporate trading similarly inactive with MYR163m transacted. Rantau 8/19 was unchanged at 3.94% with MYR20m trades. Longer-dated Danainfra 4/45 and 5/47 on combined MYR30m trades both gained 2-23bps to 5.18 and 5.14% respectively. On corporate news, Mudajaya Corporation Berhad (A2/Neg) was awarded a MYR1.16bn LRT3 project by Prasarana Malaysia Berhad to construct Package GS01 with an estimated construction period of 39 months. Including this latest job win, Mudajaya’s outstanding orderbook stands at MYR3.5bn, which translates to a cover ratio of 4.6x on FY16 revenue. Mudajaya 1/19 was last traded at 6.22%.

APAC USD Credit Market:

¨      Markets closed for Columbus Day. Markets were closed on Monday for the Columbus Day holidays. With Taiwan, South Korea, and Japan on respectively holidays as well, both the currency and bond markets were largely subdued. The DXY Index fell -0.13% to 93.68. Markets are nonetheless concerned over the ongoing geopolitical squabbles as Catalan President Puigdemont threatens to declare independence over this week, while Spain’s President Rajoy insists he will utilise all lawful means to keep Spain in one piece. In addition, the diplomatic standoff between the US and Turkey which have seen both sides suspend visa services threatens to escalate.

¨      Moody’s assigned the rating of Baa3/Pos on National Highways Authority of India (NHAI). NHAI, responsible for the construction, development and maintenance of national highway networks in India, is 100% owned by the Government of India, is of strategic importance and receives support from the government.  Therefore it shares the rating of the sovereign. S&P assigned BBB-/Sta on National Highway Authority of India (NHIA) equalising the rating to that of the Republic of India on the same reasons.

¨      Moody’s upgraded Ausdrill Finance Pty Ltd to Ba3/Sta from B1/Pos following the upgrade of Ausdrill Limited. 52% of revenue was generated in Africa and is expected to increase to 60-65% over the next 12-18 months, with increased exposures (renewing and winning new contracts), geographical and mine diversification and long track record of successful operations, despite exposures to jurisdictions subjected to higher sovereign risk. Ausdrill has also benefitted from its exposure to the gold sector due to strong gold prices and benefits from a strong and improving EBITDA margin expected to further improve with cost initiatives and specialised structure. In addition, its financial leverage (debt-to-EBITDA) has improved to 2.8x as at 30 Jun 2017 and is expected to further improve to 2.2-2.5x over 12-18 months, as its liquidity positions continue to be strong with equity raising of AUD100m completed, cash balance of AUD167m and undrawn credit facility of AUD200m for its capex requirements.

¨      Moody’s upgrade China CITIC Bank International Ltd (CNCBI)’s outlook to Baa1/Sta from Baa1/Neg. This follows its parent, China CITIC Bank Corp Ltd announced plan to raise HKD9.053bn in capital, though remaining a controlling stakeholder of CNCBI with a 75% stake. The capital injection is expected to discount the ongoing deterioration of CNCBI’s asset quality with impaired loans at 1.39% Jun 17 from 0.96% end-2016. Along with an improved funding profile, CNCBI also benefits from parental support and a government support uplift.

 

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