Asian Credits to remain vigilant before UK referendum; Another Downgrade for Noble to B+/Neg by S&P

20 June 2016

Credit Markets Weekly

Asian Credits to remain vigilant before UK referendum; Another Downgrade for Noble to B+/Neg by S&P

                                                                      

APAC USD CREDIT MARKETS

¨      Markets remain in risk aversion mode, despite the US Fed holding back on the interest rate hike in its June FOMC meeting. Accordingly USTs were 3-5bps tighter across the curve as investors flooded into safe haven assets amid last week’s weak global equities market performance, along with the flurry of central bank meetings and the upcoming UK referendum on 23-June. Turning to Asian credit markets, Brexit jitters continue to sideline investors as Asian CDS surged 6bps to 147.6bps, while IG credit spreads and average HY bonds yield widened 6.8-10bps to 222.2bps and 6.96% respectively.

¨      On ratings, S&P cut Noble’s rating again to B+/neg from BB- to reflect its weaker liquidity position, and concerns over its strategy and execution risk following the departure of Noble’s CEO, Yusuf Alireza. Tata Power was placed on negative outlook by Moody’s following the announcement to acquire Welspun Renewables Energy Ltd for INR92.5bn which will be funded by additional borrowings.

¨      Moody’s revised Future Land’s outlook to stable from negative; affirmed at Ba3, driven by improved sales, funding access and its adequate liquidity position, despite investigations by Chinese authorities on its controlling shareholder and chairman. Contrastingly, Fitch slashed Chinese real estate player, Greenland Holding to BB+/neg from BBB- on persistently high leverage and on potential headwinds in the Chinese property market. Moody’s and S&P placed Crown Resorts Ltd on a downgrade review pursuant to its proposed demerger of international assets and increased dividend payout which will reduce the Group’s retained cash flow and asset base.

¨      Primary issues declined to USD3.3bn ahead of the upcoming Brexit referendum; previous week at USD5.5bn, mainly led by issuances FI/Insurance credits (66%). Elsewhere, Wuxi Construction (NR/BBB/BBB+) may price USD benchmark 3y bonds later today; IPT at T+260bps area.

SGD CREDIT MARKETS

¨      Primaries slow ahead of June FOMC. There was only a lone issuance last week by Frasers Centrepoint Trust (-/BBB+/-) with a SGD50m 5y at 2.76% as investors stayed on the sidelines ahead of the June FOMC meeting as well as concerns of the Brexit referendum that will be held on 23 June. YTD issuances are at SGD12.65bn, around 5.6% higher if compared to a similar period last year. Brent oil prices lost steam last week, slipping below the USD50/bbl threshold on Tuesday to close at 49.2/bbl last Friday. REIT papers such as SUNSP and FCTSP garnered interest, while attention was also seen in quasi papers like HDBSP and LTAZSP. Meanwhile, Pacific Radiance is pursuing arbitration against two China shipbuilders for amounts owing including a USD10m pre-delivery installment with regards to their failure to deliver two platform supply vessels. 

¨      SOR mildly declines; May NODX springs positive surprise. The short-to-mid curve declined by around 0.5-2bps, with the 2y and 5y closing at 1.59% and 1.92% respectively after the June FOMC maintained the Fed rate at status quo. The May NODX surprised on the upside at 11.6% (consensus: -1.6%; Apr: -7.9%), though we believe that the positive print is transitory as it was largely due to an unusual hike in gold exports. Looking ahead, key data releases include the May CPI (23-June) and Industrial Production (24-June).

MYR CREDIT MARKETS

¨      Govvies benchmarks 3y-7y widened 3bps to 3.23%-3.77%, while 10y inched 1bp higher to 3.88%. MYR18.6bn of govvies were traded led by MYR2.4bn of GII 9/26 at 4.05%, MYR2.3bn of MGS 10/17 at 2.90%, MYR2.1bn of MGS 7/16 at 3.05%. Inflation eased marginally to 2.0% YoY in May as expected (Apr: 2.1%, Mar: 2.6%) due to base effects as well as weaker demand.

¨      PDS trades nearly doubled to MYR4.0bn (from MYR2.1bn) led by MYR1.0bn of Cagamas 16-23 at 3.30%-4.23%, MYR550m of Khazanah 21-23 at 3.82%-4.22%, MYR280m of Rantau 19-31 at 3.95%-4.70%, MYR245m of Prasarana 16-41 at 3.51%-4.88%. Elsewhere, Gamuda 10/18 decreased 2bps to 4.37% on MYR81m trades during the week.

¨      Over in the primary market, Bank Rakyat issued MYR300m 10nc5 B3T2 at 4.95% via Mumtaz Rakyat Sukuk (AA3); Boustead (AAAbg) priced MYR160m 1.5y MTN at 4.63%; and TSH Sukuk (AA-) printed 5y at 5.10% and 7y at 5.30% on combined MYR150m. In the primary, Tamadun Services Bhd, an SPV of IsDB, was rated AAA by MARC for its proposed MYR400m Sukuk Wakalah.