FW: RHB FIC Credit Markets Update - 5/1/18

 

 

 

5 January 2018

Credit Markets Update

           

Edra Energy Issues MYR5.085bn; MGS 04/37 BTC 1.90x.

MYR Credit Market:

¨      Trading picks up on the back of strong primaries; MYR continues to strengthen. MYR continued to perform well compared to its EM Asia peers despite the strengthening of regional currencies against the USD. The MYR continued to rally to 4.0065/USD (+0.20%). The reopening of the 20y MGS 04/37 recorded an average yield of 4.607% from 4.58% recorded the day before. The MYR2bn tender saw a BTC of 1.91x compared to 1.61x in the last auction in Jun 17. The 3y MGS ended the day unchanged at 3.32% while the 10y MGS closed +1.8bps weaker at 3.92%. The 30y MGS on the other hand remained steady at 4.82%.

¨      Govvie trading volume swelled to over MYR5.0bn from MYR1.1bn recorded the day before. A bulk of the trading occurred in the short end of the curve with the '18-'19s making up MYR2.05bn of trades. Trading on the newly issued 20y benchmark MGS 04/37 saw MYR480m change hands. Strong trades were also seen in other benchmarks as the MGS 09/24, MGS 11/27 and MGS 04/33 recording MYR304m, MYR234m and MYR93m of trades respectively. The GII benchmarks remained active with the 5y, 7y, 10y and 15y GII 04/22, GII 08/24, GII 07/27 and GII 06/33 rallying between -1.3bps and -3.6bps to settle at 3.77%, 4.07%, 4.14% and 4.62% respectively.

¨      Corporate bonds/sukuks saw trade rise as well to MYR2.1bn of trades. MYR1.8bn of which could be attributed to the sell down of the newly minted Edra Energy bonds. Notable trades include short dated RHBBANK subdebt callable 07/19 with MYR65m traded at 4.63% (+2.5bps) and MALAKOFF POW 12/19 with MYR20m changing hands at 4.36% (-3.7bps). The Bumitama Agri Ltd complex saw the short dated BUMITAMA 09/19 and BUMITAMA 03/19 recording MYR20m and MYR40m trades at 4.51% (-6.9bps) and 4.44% (-0.5bps) respectively. ENCORP 11/18, ENCORP 11/20 and ENCORP 11/26 saw yields move between -2.8bps and +4.2bps to trade at 4.03%, 4.27%, and 4.63% with a total of MYR30m trades recorded.

¨      Over in primaries, the first week of the year saw the issuance of MYR5.085bn of bonds by Edra Energy Sdn Berhad from its AA3 rated MYR5.085 sukuk wakalah programme. The sukuks were issued in 33 tranches in maturities ranging from 4y-20y. The sukuks issued had profit rates between 5.61%-6.71%. Magnum Corporation Sdn Berhad came to market with MYR125m unrated 5y bonds issued at 5.45% , 166.1bps over the last traded benchmark 5y MGS

¨      Over in ratings, MARC Ratings affirmed its AA-IS/Sta ratings on Konsortium Lebuhraya Utara-Timur (KL) Sdn Bhd's (Kesturi). DUKE Phase-1 has been operational since 2009 while DUKE Phase-2 commenced full operations following the opening of Tun Razak Link and Sri Damansara Link on September 28, 2017 and October 23, 2017 respectively. The rating affirmation reflects the satisfactory traffic performance of DUKE Phase-1 and the additional traffic flow from the recently completed DUKE Phase-2. The ratings also take into account the project's manageable debt maturity profile that is commensurate with its cash flow generation. Moderating the ratings are the highly leveraged capital structure as well as the limited capacity on DUKE Phase-1 during peak hours to accommodate future growth. Kesturti's tolling revenue grew to MYR125.9m up to Jun 17 (FY 17) though the delay to the commencement of DUKE Phase-2 led to traffic flow -13.7% below projections. Free cash flow remained negative due to partial settlement of the engineering, procurement and construction contract sum for DUKE Phase-2. Any downward pressure on the rating could develop if the traffic ramp-up at DUKE Phase-2 is slower than expected, resulting in erosion of cash flow coverage. RAM Rating affirmed the rating of Teknologi Tenaga Perlis Consortium Sdn Bhd (TTPC) at AA1/Sta. During the review period, TTPC had operated within performance limits stipulated in the PPA and earned full available capacity payments (ACPs). Further, TTPC had managed to fully pass through its fuel cost to TNB. RAM expects average annual pre-financing cashflow to MYR214m for the remaining tenure of the sukuk, which would result in FSCR post-distribution of 1.80x. RAM Ratings affirmed the rating of Cahya Mata Sarawak Berhad (CMS) at AA3/Sta. This rating is backed by its strong market position and vertically integrated operations, further expected to benefit from the development of the Sarawak Corridor of Renewable Energy (SCORE), the State's ambitious digital economic transformation plans and the Pan Borneo Highway project. Despite a slowdown in Sarawak's construction sector, CMS' profit before tax 9M 17 rose 44% YoY. Following a debt drawdown of MYR500m, gearing ratio is at 0.26x Sep 17 (0.11x Dec 16) while FFO/debt came down to 0.33x (0.92x Dec 16).  RAM Rating also maintained the rating on Jati Cakerawala Sdn Bhd at AAA3/Neg. The negative rating still reflects Jati's intention to maintain high dividend payments over the remaining tenure of the sukuk which would result in the subordinated FSCR to come below 1.50x, according to RAM's sensitivity analysis after Jul 19, following repayments of some of the sukuk principal

 

APAC USD Credit Market:

¨      US Treasuries yields higher after jobs data. Focus was mostly on economic data front as job statistics came in mostly positive. The ADP employment change showed better-than-expected results as figures recorded at 250k (consensus: 190k) for the month of Dec17, a jump from 185k on Nov17. Initial jobless claims for end Dec17 period, however, rose from 247k to 250k as forecast initially showed a reduction to 240k. Meanwhile, the Markit US Services PMI and Composite PMI for the month of Dec17 recorded slightly stronger numbers as both increased to 53.7 (Prior: 52.4) and 54.1 (Prior: 53.0) respectively. The USTs were seen falling especially on the shorter end of the curve following the recent release of jobs data. The 2Y UST continued to weaken as yields edged higher to 1.95% (+2.02bps) while the 10Y UST remained firm at 2.54% (+0.54bps) with the 2s10s spreads now closed to 50bps.  The USD was seen paring gains from the previous day as the DXY declined -0.34%, closing at 91.9. Looking ahead, market participants will keep a close tab on more jobs data to be released later today where non-farm payrolls is forecasted to increase by 198k for the month of Dec17 from 228k  rise in Nov17.  

¨      Hong Kong corporates rallied in AxJ IG CDS. The iTraxx AxJ IG spreads reached to a new lows as it declined to 65.4bps (-1.1bps). Over in CDS space, Hong Kong corporates saw a decent rally. PCCW-HKT Telephone Ltd. recorded a marginal fall in CDS levels of approximately -10.1bps to lead the tightening for the day. This was followed by Swire Pacific Ltd. shedding about -6.1bps of spreads while both Sun Hung Kai Properties Ltd and Hongkong Land Co. Ltd. saw a similar decline in levels of nearly -3.9bps. Singapore financials United Overseas Bank Ltd, DBS Bank Ltd and Oversea-Chinese Banking Corp Ltd saw spreads compress between -3bps and -3.5bps. Other notable entities include CapitaLand Ltd and ICICI Bank Ltd with spreads declining close to -3.2bps and -3bps respectively. Meanwhile, Singapore Telecommunications Ltd led the widening in the CDS space as levels climbed close to +3.2bps.

¨      Fitch Ratings has downgraded LVGEM China Real Estate Investment Co. Ltd. (LVGEM) to B/Sta from B+/RWN. The downgrade reflects on the recent HKD9bn acquisition of a Hong Kong office building on 29 Dec17. LVGEM's leverage is expected to deteriorate with net debt/adjusted inventory exceeding past the 50% level at end-2017 and to remain above the 45% level in the next 2 years. LVGEM recorded lower contracted sales during the period of Jan-Nov 2017 as pre-sales in Mangrove Bay No.1 Phase I declined due to Shenzhen's restrictive pricing policies, suppressing the project's average selling price of which the sale of the project is estimated to generate CNY1.4bn. Recurring income remained healthy as rentals from Shenzhen NEO towers, hotel and car park rentals and its property management business would be able to generate approximately CNY700m, as estimated by Fitch. Recurring EBITDA/interest coverage is projected to fall to a revised level of 0.4x in 2017 from 0.6x in 2014-2016 as a result from the Hong Kong office acquisition.

¨      Moody's has downgraded Global Logistic Properties Ltd (GLP) from Baa2/Neg to Baa3/Neg. Following the ratings review initiated by Moody's on early Oct17, the downgrade is driven by the rising debt leverage resulted from the acquisition of Gazeley, a European logistics portfolio and the debt incurred post-privatisation. China Vanke Co. Ltd., Bank of China Group Investment Ltd, Hopu and Hillhouse Capital had proposed to privatise GLP at USD12bn on an equity value basis which will close by end jan18. Moody's projected that adjusted net debt/EBITDA after joint-venture adjustments will increase from 10x as at end Sep17 to approximately 13x-14x  for FY18. GLP plans to develop its financial services income segment which provides working capital financing to its tenants in China and the average maturity of financing ranges between three months and a year. Moody's expects that this segment would grow over the next 2 years despite being immaterial to the GLP's total revenue as at FY17. GLP, however, has committed to continue its deleveraging plan over the next 2 years. 

¨      Moody's has placed a review for upgrade on the B3/Sta rated Yingde Gases Group Co. Ltd. The review reflects on the refinancing plans made by Yingde Gases. On 4^th Jan18, Yingde Gases launched a senior unsecured notes offering of which the proceeds will be used mostly to finance existing offshore debt. Moody's estimates that Yingde Gases debt leverage to improve as adjusted debt/EBITDA projected to decline from 3.3x as at Jun17 to 2.3x over the next 12 to 18 months. In addition, liquidity should improve significantly from the 36% level recorded in end Jun17 would exceed the 100% mark during the same period, as measured by cash/short term debt ratio.

 

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