Credit Market Watch: Summary for week ending 8-Apr

Credit Market Watch: Summary for week ending 8-Apr

·         MYR Credit:

Ø  MGS curve shifted modestly flatter WoW as yields in the 7y10y part edged higher on profit taking while the longer-end yields were a tad lower on buying interest from relative value seekers and foreigners.

Ø  IJM's rating outlook was revised back to stable by MARC citing among others improved balance sheet position and business prospects and its credit metrics have been restored to levels commensurate with its rating band. This is not unexpected as the negative outlook seemed to us a bit of a rush in the first place as there hadn't been a sign of significant/sustainable deterioration in IJM's overall profile.

Ø  Relative value: 1) First Resources, which we maintained a stable outlook, offers some value as its 17s was last traded 24bps wide and 21s 6bps wide from our fitted AA2/AA line. 2) WCT 20s, 22s and 23s traded 18-22bps wide from our fitted line, which primarily reflects its credit weakness with a negative outlook from MARC. In fact we still maintain a stable outlook on the name, although with a cautious tone. Deleveraging exercise and improved contributions from construction segments should help sooth rating agency's nervousness on its credit and hence no downgrade just yet, but a decisively bold deleveraging decision is key, as WCT's existing balance sheet and credit metrics are highly susceptible to unexpected slowdown in economic condition. Given its reliance on capital market for access to debt funding (judging from its current borrowings composition) a rating downgrade would be a highly undesirable outcome, in our view, therefore a speed up in deleveraging exercise is needed.

·         Asian USD Credit:

Ø  UST curve shifted 3-6bps lower along the 2y10y WoW. Asian credit spreads was moderately wider, with JACI composite +2bps, JACI IG +2bps and JACI HY 2bps WoW.

Ø  Sovereigns outperformed in the Asian credit space. INDON, PHILIP, MALAYS and KOREA mostly reported gains (in prices). The PHILIP curve tightened 10-20bps at the long end, MALAYS 5-7bps stronger and KOREA 5-10bps better.

Ø  Investor meetings for the USD sukuk offering from the Government of Malaysia will start today until 18 April.

Ø  Rating changes: SOHO China's rating was downgraded by Moody's to Ba2 from Ba1, citing credit metrics are weaker than Ba1 parameters and its transition into build-to-hold business model will take longer than expected thus increasing the volatility for business and financial performances. Meanwhile, Evergrande was downgraded by S&P to B- from B+ due to material deterioration in leverage, expectation of tighter liquidity and heightened refinancing risk.

·         CDS: EM Asia 5y CDS spreads saw mixed performance. Philippines and Thailand tightened -2bps WoW while China and Indonesia were 4bps and 7bps wider and Malaysia 2bps softer WoW.