Credit Market Watch: Summary for week ending 17-Jun

·         MYR Credit:

Ø  MGS yields moved sideways WoW. PDS started last week on a weak tone but turned slightly more constructive mid-week. Activity was heavily focused on quasi-sovereigns which posted MYR2.3b traded volume.

Ø  YTL Power: PowerSeraya reported only SGD2m (circa MYR6m) in pre-tax profit in 3QFY6/16 compared to over SGD60m back in 2013. The weak results were not unexpected given the ongoing competition from capacity glut in the industry. YTL Power's earnings are now primarily dependent on contribution from Wessex (in GBP). Elsewhere, Paka plant's extended PPA is still under negotiations over land leases. Our equity analyst thinks the PPA may start in Oct 2016.

Ø  CIMB Bank: Amended non-viability terms of its MYR10b Tier 2 Subordinated Debt to include a linkage to CIMB Group Holdings Bhd and its subsidiaries for notes issued from 1 Jan 2016 onwards. These notes are rated AA2 by RAM. The new terms do not apply to notes issued before the aforementioned date which still carry AA1 rating.

Ø  Senai Desaru: BBB-/stable reaffirmed by MARC. Traffic on SDE was higher than projected at 17.6% YoY in 2015. Key credit risks include underdeveloped areas and slow progress of proposed developments around the highway, dependent on government compensation and capex commitments as specified in the concession, though the company is still seeking for a deferment. Minimum and average FSCRs are forecasted to be 1.95x and 2.51x respectively.

Ø  Grand Sepadu: AA-/stable reaffirmed by MARC. NNKSB posted 0.25% YoY increase in traffic volume with Kapar Westbound toll seeing more Class 5 vehicles due to new worker quarters, while Bukit Raja toll had lesser Class 3 and 5 vehicles passing through.

Ø  Relative value: Prasarana 2/26 seem to offer value last traded 4.39%, 16bps outside our fitted line, which is 8bps more than Prasarana 12/25 for just 2 months longer in tenor.

·         Asian USD Credit:

Ø  UST strengthened for third consecutive week with yields along the 2y10y lower by 3-5bps WoW as uncertainties clouding the Brexit vote amid sluggish global growth encouraged demand for safe-haven assets.

Ø  Brexit poll update: Remain camp regained its advantage in the EU referendum polls but it still a close call. The Bloomberg composite polls, which aggregate both online and telephone poll results, showed that "Remain" swung back to a 3 points lead (45% vs 42%, 13% undecided) from as high as 6.5points deficit in the middle of last week.

Ø  Brexit results: Votes for the EU referendum will be counted after the polls close at 21:00 UK time, with majority of local counting area results expected to be available between 01:00 and 03:00. Therefore, the projection of results should be on the headline news in the Asian Friday morning trading hours and final results around afternoon especially if it is a close count.

Ø  In Asian credit, spreads widened with JACI composite +8bps, JACI IG +7bps and JACI HY +16bps WoW. We expect the thinning of liquidity leading to the EU referendum poll. Regional sovereigns traded mixed, with KOREA tighter while MALAYS, INDON and PHILIP moderately wider.

Ø  Rating changes: Noble Group's rating was downgraded by S&P to B+ from BB-, citing weakness in liquidity position and higher funding costs and refinancing risks is high over the next 12 months hence the negative outlook.

·         CDS: EM Asia 5y CDS spreads widened, led by Indonesia and Malaysia +6bps each while China and Philippines +5bp each WoW.