FW: RHB FIC Credit Markets Update - 6/12/17

 

 

 

 

6 December 2017

 

Credit Markets Update

                                               

MYR Sees a Pullback; MGS 11/27 Reopening of MYR2bn

MYR Credit Market:

¨      Market remains on the sideline, despite stronger trade volumes; MGS 11/27 closing to be watched.  Investors remained on the side lines with yields largely unmoved ahead of the upcoming reopening of the 10y MGS 11/27 later today and a busy economic calendar ahead in Malaysia. The MGS reopening has a planned smaller auction size of MYR2bn with another MYR500m privately placed. The 3y MGS remained unchanged at 3.40% while the 10y MGS weakened +1.1bps to 3.86%. The 7y MGS continued to rally, with yields now trading slightly lower than that of the 10y MGS.  The MYR saw a pullback as it fell -0.09%, underperforming most of the major currencies in EM Asia closing at 4.0665/USD.

¨      Govvies trading saw a pick up to just above MYR3bn. Investors remained largely on the sidelines, with trades occurring no longer than the 15y maturities. The recently reissued benchmark 15y MGS 04/33 and soon to be replaced benchmark 15y GII 08/33 recorded trades worth MYR256m and MYR190m respectively, closing at 4.40% (-2.3bps) and 4.66% (-2.2bps).  Off-benchmark MGS 11/21 saw MYR235m change hands at 3.58% (+0.6bps). Interest was also strong among the benchmark 5y, 7y and 10y GIIs where MYR380m, MYR141m and MYR261m were recorded where yields moved between -0.2bps and -0.7bps to 4.388%, 4.06% and 4.26% respectively. The benchmark 7y MGS 09/24 rallied -2.5bps on trades worth MYR381m.

¨      Secondary trading in the corporate bond sees a pick up to MYR460.  A large proportion of the trades occurred in GG issuers, as the DANAINFRA complex saw MYR118m trades while the GG facilities of PASB saw a further MYR20m. Most notably the DANAINFRA 04/30 and 11/30 saw yields edge down -34.2bps and -3.3bps respectively to 4.70% and 4.72% while the DANAINFRA 04/39 saw yields pick up +12.1bps. The GG PASB 06/24 and PASB 02/21 on the other hand saw yields mixed as they traded at 4.26% (+0.8bps) and 3.97% (-5.5bps). PUTRAJAYA 05/26 saw MYR30m traded -2.2bps stronger at 4.53% whereas the ALLIANCE 10/25 subdebt callable 10/20 saw yields edge down -2.4bps to trade at 4.85%

¨      On ratings news, RAM assigns AA2/Sta rating to SkyWorld Capital Berhad's MYR50m Tranche 1 IMTN under its MYR600m IMTN Sukuk Mushrakah Programme. Under this programme, SkyWorld Development Sdn Bhd (SkyWorld) or its subsidiaries will, from time to time, sell to SkyWorld Capital, their beneficial interest under the respective sale and purchase agreements (SPAs) signed with the buyers of specific property development projects. SkyWorld Capital is a subsidiary and special-purpose funding vehicle for SkyWorld. Concurrently, SkyWorld Capital will also undertake an unrated MYR400m ICP Sukuk Murabahah Programme structured to act as a contingent line for its respective projects. Tranche 1 IMTN will be backed by the future SPA receipts in relation to the yet to be completed residential and commercial units part of SkyAwani development in Sentul. For the Tranche 1 IMTN, the ICP has been sized at MYR41m (Tranche 1 ICP) guaranteed by Danajamin Nasional Berhad and underwritten by Alliance Investment Bank Berhad. Based on SkyAwani's estimated remaining gross development profit of MYR40.7m to be collected within the sukuk's tenure and the available cash in the relevant accounts, this translates into a 32.7% over-collateralisation ratio for the Tranche 1 IMTN

¨      MARC has assigned a preliminary rating of AA-IS to SAJ Capital Sdn Bhd's (SAJ Capital) proposed Sukuk Murabahah of up to MYR650m for up to 12 years. SAJ Capital is wholly owned by Ranhill Capital Sdn Bhd (RCSB), which in turn is a wholly-owned subsidiary of Bursa Malaysia-listed Ranhill Holdings Berhad (Ranhill). RCSB holds an 80% interest in SAJ Ranhill Sdn Bhd (SAJ), the sole provider of treated water services in Johor. SAJ operates under a three (3) year operating license under the purview of the National Water Services Commission (SPAN) and has the right of use of water assets for 45 years under a facility agreement with the national water asset owner, Pengurusan Aset Air Berhad (PAAB). SAJ leases from PAAB water assets comprising 44 water treatment plants, 22,004km of water distribution infrastructure and 15 sludge treatment plants in Johor. As at end-June 2017, SAJ has a combined water treatment capacity of 754 million m³. SAJ is currently operating in its third three (3) year operating period and its license is due for renewal at end-2017. Licensing risk is mitigated by its stable operating track record in meeting key measures, including reducing NRW, as set out by SPAN. Based on cash flow projections that include tariff revisions for each operating period that are in line with the increase in lease rental payables to PAAB, SAJ Capital is expected to provide an average finance service cover ratio (FSCR) of 3.75x over the repayment period of the sukuk. MARC notes that the cash flow projections are susceptible to delays in tariff increase, although in the event of such delays, SAJ would propose to defer capex spending and thereby delay any concomitant increase in lease payment.

APAC USD Credit Market:

¨      USTs ended mixed. While the passing of U.S Tax Reform Bill remained a key event among investors, the market has been reacting to the recent economic data. The trade deficit widened further to USD48.7bn, below the forecasted figure of USD47.6bn, which may be largely driven by the rising oil prices. The ISM Non-Manufacturing Index was also below expectation, falling to 57.4 Nov from the multi-year high of 60.1 in Oct. The 2y USTs continued to weaken which saw yields inching higher to 1.82% (+1.2bps) ahead of the FOMC meeting in 13^th December as the expectations of a rate hike remained high. Meanwhile, longer dated treasuries saw a rally as the 10y USTs rebounded with yields falling to 2.35% (-2.1bps) while yields for the 30y USTs declined sharply to 2.73% (-3.2bps). The DXY Index gained a further +0.20% to reach 93.4. Jerome Powell's nomination to replace Fed Chair Janet Yellen has cleared Senate Banking Committee with strong expectations he will be confirmed by the full Senate soon.

¨      Credit spreads largely unchanged. The Asia ex Japan IG credit spreads paused at 162.4 (-0.1bps) whereas the Asia ex Japan HY bond yields remained firm at 6.71. The IG iTraxx AxJ also relatively unmoved overnight, currently stood at 72.9bps (+0.2bps). Top performers in the CDS space were Korean FIs as EXIM Bank of Korea, Industrial Bank of Korea and Korea Development Bank saw spreads tightened between -4.26bps and -5.28bps. Leading the widening in the CDS space was KT Corp with spreads increase of nearly +1.94bps. CapitaLand Ltd saw CDS levels continue to widen close to +1.58bps. Hyundai Motor Co. Industrial and Commercial Bank of China Ltd and Bank of China Ltd, on the other hand, reversed its gains yesterday as spreads widened around +1.40bps and +1.36bps respectively. Similarly, Hyundai Motor Co and SK Telecom Co Ltd saw spreads widened almost +1.40bps and +1.36bps respectively.

¨      Moody's has upgraded Anton Oilfield Services Group/HK to Ba3/Sta from Caa1/Pos following the proposed offer of USD300m notes issuance due in Dec-20 of which approximately USD176m would be in the form of a debt exchange offer and a fresh issuance of USD124m worth of bonds as part of its refinancing plan. The remaining outstanding amount of the existing notes will be USD71m (RMB472m) once the exchange has been completed. The net proceeds of the new bond issuance will be used to refinance the existing notes and for general corporate purposes. This new corporate action is expected to improve the liquidity and smoothen the debt profile of Anton

¨      Moody's has assigned A3/Sta rating on Wuhan Metro Group Co. Ltd. The rating is reflected on the potentially strong support from the Wuhan City Government in addition to the indirect support from the central government. Fitch has assigned a final rating of BBB/Sta to Inner-Mongolia High-Grade Highway Construction (IMHCD). The rating is reflected on the credit-linked with those of Inner Mongolia Autonomous Region, which in turn enjoys close links with the government. IMHCD's standalone credit profile is constrained by its high debt leverage and low coverage. Fitch expects its net debt/EBITDA to stay around 12x-14x, while its interest coverage should remain at 1.0x-1.1x over the next two to three years.

 

 

 

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