Credit Market Watch: Summary for week ending 22-Apr

Credit Market Watch: Summary for week ending 22-Apr

·         MYR Credit:

Ø  Market softened amid a quiet week with MGS yields slightly higher by 2-3bps and PDS yields largely higher by 1-4bps WoW.

Ø  Danainfra raised a total of MYR4.5b via multi-tranche GG bonds: MYR800m from 7y, MYR500m from 10y, MYR700m from 15y, MYR500m from 20y and MYR1b each for the private-placement tranches of 25y and 30y. Pricing was in the region of 40-53bps spread over MGS, most seemed fair except for the 7y point which we think was slightly rich being priced 3bps inside our fitted line.

Ø  CIMB: The holding company CIMB Group Holdings plans to issue B3 AT1s, which RAM has accorded a rating of A1/stable, 3 notches down from the company's AA1/stable rating to reflect the write-off/share conversion clause in the event of non-viability or CET1 falling below 5.125%, subordinated ranking and coupon payment flexibility. This should improve its Tier 1 capital levels which remain one of the lowest among peers. CIMB Group is still focusing on improving operational efficiencies, while Indonesian credit costs are expected to remain high as it tops up provision for NPLs, which are limited to the commodity portfolio for now.

Ø  Relative value: JEP 12/32 seemed to offer value as it last traded 11bps above our AA3/AA- fitted line and 30bps more than the 1½ year shorter JEP 6/31. Kesturi 31 traded 13bps wider than the fitted line.

·         Asian USD Credit:

Ø  UST curve bear-steepened as the 5y10y part shifted 14bps higher WoW. Asian credit spreads moved tighter, with JACI composite -5bps, JACI IG -5bps and JACI HY -5bps WoW.

Ø  Sovereigns saw mixed performance. INDON managed to score another week of outperformance edging 2-5bps lower in yields WoW, PHILIP curve marginally higher, KOREA 4-9bps weaker while the yields for MALAYS shifted >10bps higher along the 5y10y.

Ø  To recap, 1) the Government of Malaysia priced its two-tranche USD sukuk raising a total of USD1.5b primarily for the refinancing of USD1.2b Wakala sukuk which is due to mature on 6 July 2016. Pricing was somewhat tight. The USD1b 10y tranche was priced at T+135 on USD3.9b order size and the USD0.5b 30y tranche at T+145 on USD2.4b order size;  2) Maybank sold USD500m Basel 3 compliant 10.5NC5.5 Tier-2 sub-debt at T+255, tighter from IPG of T+280. The sub-debt, which has the point of non-viability clause, is rated at Baa2/BBB by Moody's/S&P, 2 notches down from issuer's rating of A3/A- by S&P/Moody's and 1 notch down from its old-style sub-debt's rating of BBB+ by S&P.

Ø  Rating changes: Yanzhou Coal's rating was downgraded by Moody's to B2 from Ba3, citing a fundamental downward shift has occurred in the mining sector and the agency expects the downturn to be deeper with longer recover period, which would translate into weaker credit metrics and higher credit risks as Yanzhou increases capex (RMB6-9b p.a.) in the next 2 years if coal prices remain low while operating cash flows are only estimated at RMB2.5b - 3.0b.

·         CDS: EM Asia 5y CDS spreads movement was mixed. Malaysia and Philippines shifted 6bps and 2bps wider, while Indonesia 8bps tighter.