FW: RHB FIC Credit Markets Update - 7/11/17

 

 

7 November 2017

 

Credit Markets Update

                                               

MYR Bonds Foreign Holdings Slips; Sinarmas Land Rated AA3

MYR Credit Market:

¨      Foreign holdings reversed slightly in October. Latest report on foreign holdings of MYR bonds showed an outflow of MYR2.8bn, reversing the previous month positive inflow of MYR9.34bn. This brings the total foreign holdings of MGS to 42.7% of total MGS outstanding and 27.6% for total govvies outstanding. Benchmarks MGS 3y-5y inched higher as yields closed +0.7bps at 3.49% and +0.8bps at 3.71% respectively while benchmark 10y MGS tightened slightly by -0.1bp to settle at 4.00%. Meanwhile, the MYR traded +0.12% higher against the greenback at 4.2315/USD.

¨      Elsewhere, capital markets regulator, Securities Commission (SC), plans to boost retail participation in the bond and sukuk markets by liberalising rules around bond issuances by 1Q18. The liberalisation involves reviewing issuance processes and disclosure requirements for primary market issuance while allowing retail investors increased access to the bond market. Under the "Seasoning Framework, the secondary market will be reviewed as well, enabling greater retail access to existing corporate bonds and sukuk traded. In addition, SC has launched a centralised information platform, Bond+Sukuk Information Exchange (BIX) that consolidates bond and sukuk prices and credit information to better assist investors with their investment decision.

¨      Slow start to the week as govvies and corporate segments both recorded low trading volume. Govvies trading activities recorded a mere MYR423m with short dated securities accumulated 78% of the total trades. Off-benchmark MGS 7/19 was the top traded security which saw MYR70m changed hands to close at 3.32% with yield increased by +1.2bps. The benchmark 7y MGS 09/24 was also relatively active with a volume of MYR62m recorded. Off-benchmark securities MGS 02/18 and 03/18 saw MYR52m and MYR66m of transactions settling at 3.026% and 2.9% respectively with yield widened +2.7bps for 02/18 and narrowed -5.1bps for 03/18. The off-benchmark MGS 10/20 recording MYR39m in volume to close at 3.485% that saw yield increased slightly by +0.3bps. Corporate bond trading recorded MYR239m with trades mostly focused on the AA segment. BGSM 12/23, 08/25 and 03/26 recorded a total of MYR70m to settle at 4.748% (+0.9bps), 4.838% (+2.1bps) and 4.889% (-1.7bps) respectively. DANAJAMIN 10/27 saw MYR30m changed hands closing at 4.778% (-1.9bps). Other notable trade was the BUMITAMA 09/19 with a volume of MYR20m recorded closing at 4.527% (+4.3bps).

¨      RAM assigned AA3/Sta rating to Sinarmas Land Ltd's (SML) funding vehicle Prime Glory Capital Limited. The rating is underpinned by SML's strong market position as a property developer in Indonesia, based on landbank and property revenue. The group has a robust cash flow generating capacity with FFO/debt ranging from 0.25-0.45x over the past three years. The group's balance sheet is envisioned to remain around the range of 0.40x. The rating is however constrained by cyclical natural of the property sector, evolving regulatory landscape and concentration risk arising from the large revenue contribution from the flagship project, Tangerang regency.

APAC USD Credit Market:

¨      USTs continue to see a rally in the long end. As discussions proceed on the Republican bill on tax reform measures, amendments are expected as it passes through the House of Representatives and Senate before being passed, leading to rallies in the market, especially in light of the speech by BoJ Governor and the rally seen in European bonds. Investors also continue to contend with news Fed Reserve Bank of NY President Dudley announced retirement six (6) months earlier than scheduled. A rally in crude oil (Brent crude +3.54% to USD64.27/bbl) on the back of shakeup in Saudi Arabia where numerous princes, minsters, and businessmen faced arrests and rising geopolitical tensions with Yemen have seen rising concerns of a resulting slowdown in global economies. The 2y USTs fell +0.6bps to 1.62% while the 10y USTs rallied -1.6bps to 2.32%. The USD as seen in the DXY Index pared back -0.19% to 94.76. Market continues to watch for the first leg of President Trump which saw increased concerns on simmering tensions with North Korea while he pushes for a bilateral trade agreement between Japan and the US.

¨      HY Spreads Continues to Outperform IG Spreads. IG credit spreads rose +1.6bps to 161.0bps, whereas the HY bond yields continued to fall a further -1.0bps to 6.62%, on the back of a rally in the long end of the UST market the day before. The iTraxx AxJ IG spreads widened +2.54bps to 76.96bps. Leading the widening in CDS levels for the day were the sovereign CDS of China and Indonesia, both which saw levels widen +3.0bps and +2.7bps respectively. In addition, FIs of China and South Korea, Bank of China Ltd, Industrial & Commercial Bank of China Ltd, Industrial Bank of Korea, and China Development Bank saw CDS levels edge up +1.9bps to +2.5bps. Other South Korean FIs, Kookmin Bank, Export-Import Bank of Korea, and Korea Development Bank saw CDS levels tighten -1.3bps to -2.1bps.

¨      In the primary market, Australia & New Zealand Bank (Aa3/AA-/AA-) tapped the market for USD2.75bn split into four tranches. Two of which were 3y and 5y bonds with coupons of 2.25% (T+53bps) and 2.625% (T+65bps) respectively. The rest were issued in 3y and 5y FRNs with coupons of 3mL+32bps and 3mL+58bps. AVIC International Leasing Co (NR/NR/BBB+) printed USD300m 5y bonds at T+137.5 bps v IPT T+175bps whereas Prime Bloom Holdings Ltd (B3/NR/NR) guaranteed by Shandong Ruyi Technology Group Co Ltd issued USD100m at 6.95% coupon. China Jianyin Investment via JIC Zhixin Ltd (A2/A/A+) is on a roadshow with plans to issue 5y and 10y bonds, PT Sawit Sumbermas Sarana Tbk (B1/NR/B+) and the Government of Pakistan (B/B3/B) has plans for USD prints.

¨      Over in ratings, Moody's upgraded SK Hynix Inc to Baa3/Pos from Ba1/Pos. The upgrade reflects the change in global DRAM markets, where SK Hynix has a strong position, the second largest supplier in the global DRAM market by revenue. In addition, Moody's views that restrained capacity, increased technological migration, and growing entry barrier from technological complexity would demonstrate decreased cyclicality and improve industry conditions. From a financial position, operating margin is expected to increase to 44% 2017-18, significantly above the 25% average in 2013-16. At the same time, capex is expected to increase to KRW10trn in 2017 from KRW6-7trn 2015 and 2016, though the debt level is expected to remain stable at KRW4.3trn. Debt/EBITDA is expected to be around 0.3x in 2017-18, from cash flow generation while cash holdings is expected to remain conservative at KRW6.3trn as at end Sep 17. SK Hynix also enjoys a one-notch uplift from its standalone credit on expectations of financial support from the largest shareholder SK Telecom Co Ltd. Moody's upgrades the outlook of Tata Steel Ltd to Ba3/Sta from Ba3/Neg. This outlook change reflects what Moody's sees as a benign operating environment, leading to the recovery in financial performance which is expected to continue over a longer term, leading to sustained improvements in credit metrics. With China's capacity removal, supply-side reforms and environment protection measures, steel production from the country is expected to continue declining, while the demand for steel in India is expected to grow in mid-single digits in 2017 and 2018 which is expected to be a credit positive for Tata Steel.

 

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