Dear all,
Credit Market Watch: Summary for week ending 27-Apr
· MYR Credit:
Ø MGS yields were driven higher by bearish bond sentiment and stronger USD but managed to recoup slightly after the strong showing in 10y GII auction. MGS yields largely higher by 2-10bps WoW, with the 10y yield up 8bps WoW. Corporate bond yields, which usually lag the move in MGS, moved 3-8bps higher WoW and had MYR1.9b traded volume.
Ø MKD Kencana sold MYR1.3b of GG bonds to fund the Special Border Economic Zone in Kedah. The MYR850m 5y tranche was priced at a final yield of 4.33% while the MYR450m 7y tranche yielded 4.47%. Al-Aqar raised MYR243m, comprising MYR220m 3y Class A (rated AAA) and MYR23m 3y Class B (rated AA2) notes which were priced at 4.64% and 4.95% respectively.
Ø QSP Semenanjung: MARC sees no immediate rating action in regards to the construction delay as TNB has extended the scheduled CODs for all three solar power plants to 31 Mar 2018 from end-Dec 2017. QSP may be seeking for a second extension with a later COD date if the first one is not met. MARC does not expect the completion delay to significantly impact project FSCR and any cost overrun would be borne by the sponsor. For near term liquidity, the agency opines QSP has sufficient cash buffer, sponsors’ support and ability to defer final EPC payment.
Ø Macro: Malaysia’s external reserves surged USD2.2b in the first two weeks of April to USD110b, the highest level since end-Feb 2015, on the back of export earnings repatriation and corporate inflows, reckon from O&G sector following Saudi Aramco’s investment in RAPID. External reserves now cover 7.7x of retained imports and 1.1x of ST external debt (end-Mar: 7.4x; 1.1x).
Ø Relative value: AA-rated BEWG 2023 trading at 5.19%, which is 12bps wider than our fitted AA2/AA line and appears to offer value relative to AA3-rated Tadau Energy 2023 which dealt at 5.07%.
· Asian Credit:
Ø UST curve bear-flattened along the 2y10y, as 2y yield rose 3bps while the 10y was unchanged at 2.96%. 10y UST yield breached the 3-handle in the middle of last week but managed pull back later, erasing early losses. 1Q18 GDP in the US expanded by 2.3%, a slowdown from 2.9% in 4Q17 but beat Bloomberg consensus of 2.0%.
Ø In Asian USD credit, market tone remained cautious. Spreads were generally wider, with JACI composite +3bps, JACI IG +1bp while high-yield segment underperformed with JACI HY +11bps WoW. The sovereign space was weighed by concerns over the weakening of Rupiah, which prompted Bank Indonesia (BI) to step up intervention and reinforcement of its commitment to financial market stability. INDON and INDOIS led losses for sovereign, rising by about 10-15bps WoW, PHILIP were 3-10bps higher, while CHINA, KOREA and MALAYS fared better, between flat to 5bps higher in yields WoW.
Ø Rating changes: Lippo Karawaci’s ratings were downgraded to B2 (from B1) by Moody’s and to B- (from B) by S&P, reflecting Lippo Karawaci’s tight liquidity with weak operating cash flow and low cash buffer in the face of high interest expense and debt repayment in 2019. Its financial flexibility is also constrained as its fixed charge coverage ratio has fallen below the min 2.0x threshold under the USD bond indenture. Both rating agencies placed negative outlooks on the ratings premised on uncertainty in the execution and timeliness of Lippo Karawaci’s planned asset sales to address repayment and liquidity risks.
· CDS: EM Asia CDS saw mixed movements in spreads. Indonesia 5y CDS spread widened by 7bps WoW as the Rupiah was under pressure on portfolio outflow risk. Other countries were relatively stable, with Korea -2bps, China –1bp, Malaysia and Philippines rose 1bp while Thailand was unchanged WoW.
Regards,
Winson Phoon, ACA
(65) 6231 5831
Se Tho Mun Yi
(603) 2074 7606
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