RHB FIC Credit Market Update - 2/12/15

2 December 2015

Credit Market Update

           

Yuan’s Inclusion into SDR Basket is a Non-event for Credits

APAC USD CREDIT MARKETS                                                    

¨      Another lackluster day in credit markets; potential headwind following disappointing US manufacturing readings. The iTraxxx AxJ IG declined marginally by 1.1bps to 129.7bps after the inclusion of Yuan into the SDR basket by IMF was seen as a non-event by credit markets. Overnight, US ISM Manufacturing fell to the lowest since June 2009 at 48.6 vs 50.1 in October, underpinned stronger Treasuries as yields inched 2-7bps lower across the curve, 10y closed at the lowest level in a month of 2.14%.  

¨      Corporate credits weakened with spreads of IG widening another 1bp to 146bps* and yields of HY added 5bps to 9.6%*. Property and commodity players closed lower as seen in Franshion 21, Hong Kong Land 22, Yuexiu 23, Vanke 19, Pertamina 21 and PTTEPT 21, whereas HY’s decline continue to be dragged by Vedanta Resources 18-23, Yingde Gases 18 and the recently downgraded China Oil 18.

¨      Republic of Indonesia raised USD3.5bn to help fund 2016 budget. Via a 2-tranche bond issuance, the Indonesian sovereign (Baa3/BB+/BBB-) priced a USD2.25bn of 10y at 4.80% as well as USD1.25bn of 30y at 6.00% after garnering total order of up to USD8.1bn with IPT of 5% and 6.125% respectively. The proceeds from the issuance are earmarked for prefunding for the country’s 2016 budgetary requirements.

¨      EU’s Nov inflation data today prior to tomorrow’s ECB meeting. Market is expecting CPI to trickle up a tad by 0.2% YoY from 0.1% last month.

*based on RHBFIC internal indices.

SGD CREDIT MARKETS

¨      Tender offer on Tata paper; FI names see interest. There was a flattening in the short-to-mid curve, with the 5y falling by 2.4bps (to 2.38%) while the 2y saw a similar movement by 1.25bps (to 1.86%).  Flows were better yesterday, with interest seen in Bank/ FI names such as STANLN LT2 and BAERVX AT1 and buying in TTMTIN 5/18 after Tata made a tender offer for its sole outstanding SGD350m issuance. Meanwhile, Sembcorp Marine (NR) released a profit guidance announcement stating this it is expecting a net loss in 4Q15 due to deferment of rig orders. Its previous quarter net profit came in at SGD32.1m, a 76% YoY drop, which saw corresponding deterioration in credit profile as Total Debt/ EBITDA rose to 4.2x (3Q14: 2.1x) while EBITDA Interest Coverage fell to 6.3x (3Q14: 44x). Looking ahead, investors will be eyeing the Singapore Nov PMI to be released tonight (consensus: 49.0; Oct: 48.9).

MYR CREDIT MARKETS

¨      Corporate activity remained quiet. Secondary flows were relatively thin at MYR254m, compared to YTD daily average of MYR467m. Alliance bank B3T2 10/25c20 accounted c. 40% of the trading volume with MYR100m crossed at 5.303% (z-spread: 128bps). Elsewhere, yield for PLUS 1/28 tightened 1bp to trade at 4.859% (z-spread 32.2bps).

¨      Ringgit appreciates as Europe’s expanded stimulus to keep foreign flows into EM. MGS moved sideways to conclude the day at 3.43%-4.19% amid stronger Ringgit. The local currency strengthened 0.8% to 4.232/USD yesterday as potential ECB stimulus may encourage foreign funds flow into emerging markets for better returns. Investors to focus on the second last auction for the year, MYR4.0bn MGS5y 10/20 reopening which scheduled to close tomorrow (3-Dec). The When Issued (WI) was seen quoted at 3.85%/3.75% yesterday.

CREDIT UPDATE

Company/Issuer	Sector	Country	Update	RHB FIC View
WCT Holdings Bhd (WCT) (AA-/Neg)	Construction	MY	WCT to dispose 50% stake in Jubilant Courtyard Sdn Bhd (JCSB) to UEM Sunrise for MYR214.9m. The new JV will together develop 608.63 acres of land in Rawang.	Maintain marketweight. Including the proceed from the disposal, net gearing for WCT will reduce to 0.66x, from 0.75x as at 3Q15. This is in-line with WCT’s initiative to reduce its net gearing to 0.5x by next year. In that respect, we will continue to monitor the Group’s REIT plan expected to be occurred next year.  WCT 10/21 was seen traded at 4.955% on the 6-Nov.