Hawkish Fed Minutes Weighs on Credit Markets; Noble Slashed to Junk

23 May 2016

Credit Markets Weekly

Hawkish Fed Minutes Weighs on Credit Markets; Noble Slashed to Junk                                                            

APAC USD CREDIT MARKETS

¨      Potential Fed rate hike in June pressures Asian credit markets as iTraxx AxJ rose 0.8bps to c.145.5 while average HY bonds yields climbed 3bps to 7.16% though IG credit spreads tightened c.5bps to 209.6bps. Likewise, USTs weakened as benchmark yields surged c.8-15bps after the April Fed minutes raised expectations of a rate hike in June, with the 10y rising c.13bps WoW to 1.83% and 5y added c.15bps to c.1.36%.

¨      Moody’s cut China Minmetals’ rating to Baa1 from A3 with a negative outlook, on the back of poor profitability from its metals and mining portfolio and a material deterioration of its credit metrics. Chinese property developer Greentown was downgraded to BB- from BB by S&P with a stable outlook to reflect expectations of high leverage and negative operating cash flows over the next 12 months as a result of aggressive growth appetite. Elsewhere, Shanghai Baosteel Group was downgraded to Baa1 from A3 by Moody’s to reflect weak operating performance and credit profile on low steel prices and substantial losses at two of its steel subsidiaries.

¨      Fitch lowered Noble’s rating to junk status, slashing it to BB+ from BBB- with a stable outlook to reflect expected weakening of debt maturity profile as the company shift towards shorter-term financing to reduce overall finance cost, to complement its asset-light business model. Prior to that, Moody’s affirmed Noble Group’s rating at Ba3 with a negative outlook, following the fruitful refinancing efforts, which alleviate short-term liquidity pressure, although challenges remain over profitability, cashflow and sizeable debt maturing in 1-2 years. On a positive note, Moody’s revised Cheung Kong Property’s A3 rating to positive from stable to reflect its low leverage and strong liquidity position that exceeds the A3 rating threshold.

¨      Primary issuances slows to USD4.1bn worth of deals priced vs. USD10.7bn in the previous week, as YTD issuances grew to c.USD80.0bn. 76% of the amount raised were FIs names such as ICBC (A1/A/A)’s USD500m 3y bond and KEXIM (Aa2/AA-/AA-)’s USD2.5bn 3-part deal.

SGD CREDIT MARKETS

¨      More perpetuals issuance; Ausgroup in technical default. Weekly issuances came in strong, with a SGD500m inaugural print from Manulife Financial Corp (NR/A/A) with a 10nc5 at 3.85%, driven by strong demand with BTC of c.7x, 30bps inside initial guidance. Mapletree Logistics Trust (Baa1/NR/NR) also received good response for its SGD250m Pnc5.5 at 4.18%, printing 32bps inside initial guidance. O&G gained attention as Brent flirting at USD48 level while Ausgroup, a SGX-listed O&G player is looking for bondholders’ waiver after breaching its consolidated total equity covenant. It was not all gloom in the O&G space as Vallianz announced that it had won 13 charter contracts worth USD210m, pushing its orderbook to USD1.2bn. Meanwhile, SingPost announced that the Accounting and Corporate Regulatory Authority would be investigating it, especially with regards to its corporate governance. 

¨      SOR rose amid hawkish Fed. The short-to-mid SOR curve rose by around 9-10bps, with the 2y and 5y closing at 1.67% and 2.01% respectively as hawkish Fedspeak and FOMC April minutes saw the USDSGD weaken to 1.38. Looking ahead, investors will be eyeing the Singapore April CPI (23-May), 1Q Final GDP (25-May) and April Industrial Production (26-May).

MYR CREDIT MARKETS

¨      MGS curve flattened with the 3y rose 4bps to 3.23%, 10y fell 3bps to 3.83%, while USDMYR weakened 1.3% to 4.082. On the macro front, BNM kept the OPR at 3.25% as expected; Malaysia’s inflation for Apr eased to 2.1% (Mar: 2.6%) on base effect; while foreign reserves increased by USD0.2bn to USD97.2bn in mid-May. We expect good demand for the new MYR4bn 10.5y MGS to be auctioned today with WI was seen quoted tighter at 3.88/82%, from 3.89/80% last week.

¨      Active flows of MYR3.4bn changed hands in the corporate market with more than half of the trades were focused in PASB and other infrastructure papers such as Kesturi and SEB. Most active was PASB 9/20 which ended the week at 3.858%, 21bps below the level seen in Feb. Yields inched c.1bp higher across the AA-curves over 3-10y, according to indicative yields from BNM.

¨      More bank capital instruments. CIMB Group and CIMB Bank each issued MYR1.0bn Pnc5 AT1 at 5.8%. Meanwhile, RAM assigned AA3 to Bank Rakyat’s Proposed MYR5bn B3T2 and A3 to Bank Muamalat’s Proposed MYR1bn B3T2. Elsewhere, YTL Reit established a MYR1.65bn unrated MTN Programme for the refinancing of its existing borrowings from Ambank and Maybank.