FW: RHB FIC Credit Markets Update - 28/11/17

 

 

28 November 2017

 

Credit Markets Update

                                               

GII 04/22 Reopening; N. Korea Concerns Rise

MYR Credit Market:

¨      Benchmark MGS and MYR see a pause in last week's rally. The 3y-10y MGS seen paring gains as yields reversed to inch higher across the curve to close at 3.39% (+1.6bps) for the 3y MGS, 3.64% (+3.3bps) for the 5y MGS, 3.89% (+1.6bps) for the 7y MGS and 3.94% (+3.1bps) for the 10y MGS amid thinner govvie trading activities. The MYR traded largely unchanged (+0.06%) against the greenback to end the day at 4.1140/USD. This was partly due to the cautious sentiment among investors ahead of the US Senate debates to pass the tax reform legislation. On the local front, all eyes on reopening of the MYR3bn 5Y GII 04/22 today. Tender size of MYR3bn is within our expected print size. Elsewhere, renewed concerns over geopolitical issues in North Korea may continue to dampen risk sentiment.

¨         Slow start to the week for govvies with trade volume recorded at a mere MYR1.3bn while corporate flows transacted a healthy MYR516m. Off-benchmark MGS 09/25 was the top traded security with amount of MYR170m dealt at 4.11%, -3.1bps lower from last traded. Off-benchmark MGS 09/21 was also well demanded which saw MYR160m change hands with yields remained unchanged at 3.64%. Meanwhile, benchmark 10y GII 07/27 recorded MYR71m in total transactions to end the day +2.6bps wider at 4.26%. Meanwhile in the corporate bond space, the newly issued SUKE 11/27 accounted for a large portion of trading accounting for MYR115m of trades recorded. Despite this, AAA-rated TENAGA 8/37 recorded the largest amount of trades at MYR141m dealt higher at 5.18% (+0.9bps). GAMUDA 11/27 trading for the first time since being issued last week, MYR75m change hands  to settle at 4.80% -2.5bps from issuance.

¨         In the primaries, Projek Lintasan Sungai Besi-Ulu Klang Sdn Bhd (SUKE) has printed MYR380m under its MYR2bn sukuk wakalah programme, guaranteed by Prolintas. The A+ rated 10y-sukuks were issued with a coupon rate of 6.63%, +269bps higher compared to the corresponding benchmark 10y MGS.

¨         RAM has reaffirmed the AAA/Sta ratings of Poh Kong Holdings Berhad (Poh Kong) for its MYR150m Danajamin-Guaranteed ICP/MTN Programme (2011/2018). Poh Kong recorded higher operating profit before depreciation, interest and tax (OPBIT) of 42.1% contributed by increased sales as at FY17 as well as reduced losses from the closure of unprofitable outlets as part of its cost-saving initiatives. Poh Kong also recorded improved adjusted funds from operations to debt ratio (FFO/debt) from 0.19x in FY16 to 0.28x in FY17 due to stronger operating performance and reduced debt load. Concurrently, Poh Kong's adjusted gearing ratio reduced to 0.45x from 0.56x YoY while net gearing ratio reduced to 0.35x from 0.49x YoY, both recorded as at FY17. RAM expects Poh Kong's FFO debt coverage to be maintained at around 0.2-0.3x. Despite its sturdy liquidity position, Poh Kong's credit profile may be affected due to its exposure on the volatility of gold prices and forex rates since it derives its earnings mainly from gold. Besides that, Poh Kong's long inventory cycle and the accumulation of requisite inventory for its wide retail network have worsened its working-capital requirements. RAM has also reaffirmed AA2/Sta rating on Hong Leong Assurance Berhad (HLA) in addition to the AA3/Sta for its MYR500m Subordinated Notes Programme (2013/2025). The ratings reflect on HLA's healthier financial performance recorded in FY17 in addition to its capitalisation. HLA's gross premiums has increased by 8% to reach the MYR3bn mark as at FY17 supported by sturdy new business growth (NB) which grew 10% to MYR755m as well as the premium accretion from in-force policies which expanded by 7%. HLA's also recorded improved pre-tax profit at MYR252m in FY17, increasing by 55% YoY. HLA's NB premiums have been largely contributed by HLA's investment-linked (IL) insurance plans which accounted for 53% of NB sales in FY17 compared to 47% recorded in FY16. Bancassurance sales growth of 29% YoY can be reflected on the wide distribution and network of banca agents placed at Hong Leong Bank Berhad branches, though agency distribution remained important which accounted for 75% of HLA's NB regular premiums.

APAC USD Credit Market:

¨      Market continues to perform mixed on N Korea concerns. The trades in USTs were dominated by news that Japan reported preparation by N Korea of another possible missile launch, leading to a rally in the market. Over in economic news, the new home sales beat expectations as 685k (+6.2%) new home sales were reported for the month of Oct vs expectations of 628k (-6.3% MoM). The 2y and 10y USTs rallied close to -0.4bps and -1.4bps respectively to 1.74% and 2.33%. The 30y USTs on the other hand saw yields pick up +0.4bps to 2.77%. The DXY on the other hand saw a rise of +0.13% to 92.90. As the market comes off the Thanksgiving weekend, focus is once more on the legislature where the tax reform bill will be debated once more and the nomination of Fed Gov Powell to the Chair will take place.

¨      Credit spreads remain unchanged. Coming off the Thanksgiving weekend, the Asia ex Japan IG credit spreads and the Asia ex Japan HY bond yields remained largely unchanged at 161.2 (-0.1bps) and 6.71%(unchanged). The iTraxx AxJ halted its rally and ended the day at 76.40bps (+0.47bps).  The widening of CDS levels were led by CapitaLand Ltd, Reliance Industries Ltd and SK Telecom Co Ltd, which saw CDS levels widen between 0.4 to 0.8bps. After, its widening last week, China sovereign CDS levels fell -1.8bps while the Philippines sovereign tightened -1.5bps. Korean names Kookmin Bank, Korea Development Bank and Samsung Electronics Co Ltd saw CDS levels move down -1.3 to -1.5bps, while Singaporean FI subdebts of DBS Bank Ltd sand United Overseas Bank Ltd saw CDS levels quoted around -1.4bps tighter.

¨      Fitch assigned A-/Sta to Dong Yin Development (Holdings) Limited. Dong Yin, with its subsidiary China Orient Asset Management (International) Holdings Limited is the major offshore financing and investment platform for COAM and therefore the credit is very strongly linked to its parent. COAM in turn is one of the four (4) big asset management companies established by the Chinese government to mitigate financial risks, preserve state-owned assets, and promote reforms in the Chinese financial systems. COAM is 98% owned by the MoF, along with its strategic importance, results in Fitch's opinion of strong likelihood the subsidiary will enjoy extraordinary support. Dong Yin's consolidated assets account for 12% of COAM's assets and 1/3 of net profits. Dong Yin is incorporated as a limited liability company in HK, with no assumption of full liability on COAM, but is provided credit enhancements, such as Keepwell deeds, deed of equity interest undertakings and shareholder loans from COAM.

 

 

 

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