Muhammad Ibrahim the New BNM Governor; Sembcorp Marine’s 1Q16 Net Profit Plunged 49%

28 April 2016

Credit Markets Update

           

Muhammad Ibrahim the New BNM Governor; Sembcorp Marine’s 1Q16 Net Profit Plunged 49%

¨      APAC USD Credit Market: Asian CDS and HY were relatively unchanged at 140.4bps and 7.40% respectively while IG spreads edged up c.2bps to 211.8bps ahead of the FOMC announcement. Meanwhile, Treasuries surged as yields declined 4-8bps with 10y at 1.62% boosted by Fed’s decision to leave interest rates unchanged while reiterating gradual future hikes and noting the slower pace of economic growth. On rating front, Gemdale Corporation, a Chinese residential property developer, was downgraded to Ba2/Sta from Ba1/Neg underpinned by low gross profit margins, increased commitments to JV projects and an expected deterioration in its credit metrics.

¨      SGD Credit Market: Perennial Real Estate upsizes issuance; Sembcorp Marine results dip. There was a 3.5-4bp tightening in the short-to-mid SOR curve, with the 2y and 5y closing at 1.67% and 2.06% respectively. Rebounding oil prices (which closed at USD47.2/bbl yesterday) spurred continued interest into HY names like BREAD, GALVSP and OLAMSP. Sembcorp Marine (NR) 1Q2016 revenue fell by 30% to SGD918m, while its net profit saw a 49% decline to SGD55.6m mainly due to fewer rig building projects. Its credit profile has tightened considerably with Debt/ Assets at 41% (1Q15: 24.4%), though short-term liquidity remains as cash/ST debt stands at 1.3x. In the primaries, the Perennial Real Estate Holdings (NR) has upsized its 4y 4.55% issuance to SGD100m (from SGD75m) due to strong reverse enquiries.

¨      MYR Credit Market: Deputy governor Datuk Muhammad Ibrahim has been appointed as the new BNM governor effective 1-May. The new appointment was well-received, with the USDMYR rebounding 0.28% to 3.9135 in tandem with the rising Brent price. The Govvies market ended mixed where the 7y MGS and GII benchmarks were the most active closing at 3.82% (+2bps) and 3.94% (-2bps) respectively before the MYR3bn 7y MGS Reopening tender today with the WI last seen quoted at 3.82/3.79. Corporate flows more than doubled to MYR497m mainly from the AAA space. Notably, Khazanah-related, Rantau 3/29 and Danga 2/26 rose 1bp to 4.649% and 4.43% respectively. In the primary market, Orix Leasing (AA3) priced a MYR50m 1y at 4.17%.