FW: RHB FIC Credit Markets Update - 16/11/17

 

 

 

16 November 2017

 

Credit Markets Update

           

DanaInfra Issues MYR3bn; All Eyes on Malaysia's 3Q17 GDP Tommorrow

MYR Credit Market:

¨      The MGS and MYR continued to rally. The benchmarks MGS 3y-10y flattened across the curve with MGS 5y, 7y and 10y continued to rally with yields traded tighter between -2.3bps and -3.1bps at 3.76%, 3.96% and 4.01% respectively. Yields on benchmark 3y MGS reversed from previous day steepening to end marginally tighter by -2.3bps settling at 3.50%. The MYR rebounded sharply against the greenback contributed by the prospect of stronger 3Q17 GDP growth to be announced by BNM tomorrow. In addition, the MYR performed better than most of the EM Asian currencies that have also gained quite substantially from the weakening USD given the uncertainty over the proposed US tax reforms. The MYR advanced +0.45% higher against the USD, ending at a 1y-high of 4.1745/USD.

¨      Govvies flows sustained decently though volume moderated to MYR2.4bn. Demand was shifted towards shorter-end of the curve as trades under 3y accounted for 63% of the total transacted amount. Benchmark 10y GII 07/27 remained actively traded with total transactions of MYR362m recorded with yield tightened -3.9bps to close at 4.31%. On the other hand, off-benchmark GII 08/18 saw trading interest picked up with combined trades of MYR310m, with yields lifter higher circa +8.3bps and +10.7bps to end at 3.24% and 3.23% respectively while benchmark GII 04/20 rose in volume to MYR189m closing +2.7bps higher at 3.58%. Other notable trade was the benchmark 7y MGS 09/24 recording amount of MYR133m where yields declined by -2.8bps to end the day at 3.96%.

¨      Weaker corporate flows as volume dropped to MYR237m. Trades were mostly focused on the newly issued DANAINFRA 27s, 32s, 42s and 47s with combined trades of MYR120m to close between 4.50% and 5.35%. Other notable trades were the AA-rated WCT 12/18 which recorded amount of MYR40m settling at 4.59% (-0.2bps).

¨      Following its issuance of close to MYR7.2bn in sukuks in 2017, DanaInfra Nasional Berhad came back to MYR sukuk space with another MYR3.0bn print. This brings a total drawdown of MYR39.9bn from its MYR46bn GG facility. The sukuks were issued in five (5) tranches of maturities of 7y, 10y, 15y 25y and 30y with profits rates of 4.33%, 4.50%, 4.90% 5.22% and 5.35% respectively. The 7y, 10y and 15y sukuks were issued with 37bps, 49bps and 29bps spreads above the closing corresponding benchmark MGS yields whereas the 30y sukuk were issued at spreads of 37bps above the 30y benchmark MGS.

¨      Over to ratings, RAM has reaffirmed AAA ratings on Standard Chartered Malaysia with a stable outlook. The rating is premised on the expectation of parental support from, Standard Chartered PLC, in the event of financial distress. The bank recorded a strong pre-tax profit of MYR409m as at FY16, a significant increase from MYR42m in FY15 contributed by lower impairment charges. However, the bank's profitability is expected to be compressed by its high cost-to-income ratio of above 60% level. The bank's liquidity coverage ratio (LCR) stood well above 100% level, the bank's strong funding and liquidity position was partly contributed by its high CASA deposits encompassing 58% of its total customer deposits while its CET-1 capital ratio improved to 13.3%. RAM has also reaffirmed Mercuro Properties Sdn Bhd's AAA rating on Senior Bonds (Class A2, Class B and Class C), AA2 on Guaranteed Class D1 and AAA on Guaranteed Class D2 and Guaranteed Class E, all with stable outlook, for its MYR900m Nominal Value Bonds. Backed by 4 properties, namely Menara Affin, The Curve shopping mall, eCurve, and Royale Chulan The Curve, the reaffirmation on the special-purpose vehicle of Boustead Properties Berhad reflected on the stable performance of the properties with net property income (NPI) maintained above MYR40m YoY. On the other hand, the reaffirmation of the AA2-rated Guaranteed Class D1 Bonds reflects the irrevocable and unconditional guarantee extended by RHB Bank Berhad (AA2), while the reaffirmation of the AAA ratings of the Guaranteed Class D2 and Guaranteed Class E Bonds reflects the guarantees extended by Danajamin Nasional Berhad (AAA). Elsewhere, Central Impression Sdn Bhd (CISB) has received AA affirmation by MARC for its MYR120m 11y Fixed Rate Serial Bonds with a stable outlook. As the owner of AEON Klebang mall in Ipoh, the affirmed rating would be reflected on the credit profile of AEON Co (M) Berhad (AEON), given that the latter is the principal lessee of the mall and is making fixed lease rental payments to CISB under a 10-year lease agreement expiring in 2022. AEON has slightly improved its leverage with Debt-to-Equity (DE) ratio reduced from 0.51x in 2016 to 0.46x as at end-1H17. Additionally, the company's revenue and pre-tax profit increased by 1.4% and 6.9% YoY to MYR2.1bn and MYR82.4m during the same period. CISB is mandated to retain the Debt Service Coverage ratio (DSCR) of at least 1.75x which should mitigate any liquidity risk. CISB's stable cash flow stems from periodic lease rental payments from AEON despite CISB's operating profit margin of its retailing operations remained below 1%.

APAC USD Credit Market:

¨      Risk-off sees the second day ahead of tax reform bill. In line with our expectations the day before, the market continued to see an amalgamation of risk-off sentiment, as the CPI data in Oct came in at 0.1% MoM within consensus expectations but below the Sep 0.5%. Expectations continue to consolidate for a Dec rate hike as the futures implied probability continued to rise to 97.1%. Following that, the focus of the market has been on the Tax Cut and Jobs Act. The Thursday vote on the US House of Representatives looks to go ahead with major controversies surrounding the increase of the deficit, lack of tax impact on pass-through businesses, the loss of state and local taxes and a final amendment which would repeal the individual mandate of the Affordable Care Act. With some analysts now suggesting a thin majority of two (2) to pass the bill, investors continue to take risk off the table. The equities market globally saw a pullback, and the USTs saw a rally especially in the long end, again extending the flattening of the yield curve. The 2y UST yield came down -0.4bps to 1.68% while the 10y UST edged down -5.0bps to 2.32%. The 30y USTs saw yields continue to come down to 2.77% (-6.5bps) despite the auction which occurred. The USD as seen by the DXY Index was largely unchanged at 93.81 (-0.01%).

¨      CDS widening led by Chinese names. Despite the continued rally in USTs the day before, the Asia ex Japan IG credit spreads continued to tighten, this time -1.3bps to 161.0bps, while the Asia ex Japan HY bond yields remained unchanged at 6.74%. The iTraxx AxJ was largely unchanged at 80.12bps (+0.06bps). Leading the CDS rallies were again South Korean names, this time FI names such as Woori Bank, Kookmin Bank, Korea Development Bank and Export-Import Bank of Korea, which saw CDS levels tighten between -0.6bps to -3.9bps. Chinese names on the other hand led the widening of CDSs. Industrial & Commercial Bank of China Ltd, Bank of China Ltd, China Development Bank, and CNOOC Ltd all saw CDS levels widen by +2.9bps to +3.1bps.

¨      Moody's assigns Baa2/Sta on Union Bank of the Philippines. The bank has enjoyed above-industry average profitability with ROA of 1.2% vs industry average of 0.9%, without material decline in its capital levels (Total Capital Adequacy Ratio 15.1% from 15.7% end 2016, despite loan growth of 13% annualised). On the other side, the NPL ratio of 3.95% Sep-17 is higher than its peers due to legacy loans that have been substantially provided for, with net NPL at 1.4%, closer to the industry average. In addition, the above average loan growth of 30% 2014-16, vs industry average of 16%, is a concern on unseasoned risk to the bank. Another concern is the funding profile, which has a high concentration on large corporate depositors, who incur larger costs. The baseline rating is given a one notch upgrade on expectations the bank will receive moderate support from the Government of the Philippines in times of need.

 

 

 

 

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