FW: Credit Market Watch: Summary for week ending 23-Feb

 

Credit Market Watch: Summary for week ending 23-Feb

·        MYR Credit:
Ø        MGS yields increased further, up by 4-5bps WoW along the 5y15y, alongside rising global bond yields. The 10y benchmark MGS yield rose about 5bps WoW with WI last quoted at 4.08/07 ahead of its re-opening auction on Tuesday. Corporate bonds had mixed yields, either flat or +/-1bp WoW, but saw trading volume pick up to MYR2b.
Ø        Maxis Communications Bhd’s (MCB) 74%-owned India subsidiary, Aircel Ltd (Aircel), filing of bankruptcy should have no impact to BGSM Management’s credit, in our view. As per the organization chart below, BGSM Management is a sister company to Aircel and does not consolidate the latter’s financials. MCB’s withdrawal from injecting cash into Aircel suggests no cash call from BGSM Management group is needed to support the Indian company. There are also covenants that distant BGSM Management group from adverse impact in relation to Aircel such as no shareholder dividends if doing so result in min FSCR falling <1.15x or cash balance <MYR200m.
Ø        Mudajaya Corporation: Outlook was kept negative by RAM, citing continued uncertainties over the group’s ability to sustain credit metrics that correspond to A2. While Mudajaya has an orderbook of MYR1.4b, the pace of work execution is crucial as slow execution led to -25% YoY fall in 9M17 revenue. Gearing ratio spiked to 0.83x (9M16: 0.56x) after capital erosion from shared losses at a 26%-owned associate, RKM Powergen based in India, and Mudajaya could suffer more losses given uncertainty over power sales.
Ø        Macro: Marginal dip of USD0.1b in external reserves in 1H Feb 2018 to USD103.6b as of mid-Feb 2018, covering 7.1 months of retained imports and 1.1x of short term external debt. The small decline was mainly attributed to net selling of Malaysian equities by foreign investors.
Ø        Relative value: 1) Country Garden 2023 traded around 6.55% on average which is 175bps wide from our fitted AA3/AA- line, a reflection of investors’ cautiousness over exposure to both property and China risks. While RAM had revised the company’s AA3 rating outlook back to stable in Jul 2017, the spreads on MYR country garden bonds remain wide at pricing >2 notches lower in the region of A2 and A3. 2) AA2-rated UMWH 2023 offered some pickup last dealt at 4.72%, or 6bps above our AA2/AA fitted line, relative to AA3-rated SPG 2023 which was dealt at 4.66%. Our auto analyst sees improving sector fundamentals premised on earnings recovery from better sales and stronger Ringgit.
·        Asian Credit:
Ø        UST rebounded on the final day of the week, with the 10y UST yield receding back to 2.87% after having reached a multiyear high of 2.95% on 21 Feb. Last week initially saw hawkish Fed minutes and concerns of increase government bonds supply on larger budget deficit pressure the UST, but higher yield levels later attracted buying interest.
Ø        Indonesia sovereign raised a total of USD3b by selling 5y Green Sukuk (USD1.25b) and 10y Sukuk (USD1.75b), rated Baa3/BBB-/BBB by Moody’s/S&P/Fitch, at 3.75% and 4.40% respectively, roughly 30bps tighter than IPG. There was strong demand with the issuance oversubscribed by more than 2 times.
Ø        Asian USD credit spreads widened a tad with JACI composite, JACI IG and JACI HY all +1bp WoW. For sovereigns, CHINA’27 outperform falling 3bps WoW, while INDON, PHILIP and MALAYS rose about 1-7bps WoW and KOREA was mixed from -2bps to +4bps.
Ø        Rating changes: Moody’s placed the ratings of Punjab National Bank and Standard Chartered Singapore on review for possible downgrade, though for different reasons. 1) Action on Punjab National Bank was due to the risk of weaker standalone credit profile from the impact of fraudulent transactions. 2) Standard Chartered Singapore base credit assessment is likely to be lowered by one-notch as Moody’s views post-merger Standard Chartered Singapore as having a weaker credit profile.
·        CDS: In EM Asia 5y CDS spreads, Korea outperformed tightening -1bp, while China, Indonesia and Thailand were unchanged and Malaysia and Philippines wider by 1-2bps WoW.

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Regards,

Winson Phoon, ACA
(65) 6231 5831
winsonphoon@maybank-ke.com.sg
 
Se Tho Mun Yi
(603) 2074 7606
munyi.st@maybank-ib.com

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