Positive Outlook for XL Axiata and Indosat; MYR3.64bn Duke 3 Sukuk Given AA-/Stable Rating

2 June 2016

Credit Markets Update

Positive Outlook for XL Axiata and Indosat; MYR3.64bn Duke 3 Sukuk Given AA-/Stable Rating

¨      APAC USD Credit Market: Credit markets were mixed as iTraxx AxJ was flat at 142bps while IG credits spreads added 2bps to 209.6bps though HY bond yields tightened 1bp to 7.05%. Benchmark USTs settled mixed with shorter-dated 2y-3y gaining 1-2bps driven by the strong US May ISM print of 51.3 (consensus: 50.3; prior: 50.8), despite the Fed’s Beige Book which signaled modest US economic growth. On ratings, Moody’s revised XL Axiata’s outlook to Positive; affirmed at Ba1, driven the improvements of its financial and operating position, with expectations of debt/EBITDA to decline to 2.4x by end-2016, from 3.3x as at Dec-15. Indosat’s outlook was also changed to Positive by Moody’s; affirmed at Ba1 to reflect substantial improvements of its operational and financial profile, with LTM debt/EBITDA declining to 2.3x in Mar-16 from 2.5x in Dec-15. Furthermore, Moody’s confirmed Sinochem Hong Kong’s rating at A3/negative on expectations that credit metrics will improve in 2016, and by the close linkages with Sinochem Group and expected high support from the Chinese government. Elsewhere, Indonesian textile manufacturer, Sri Rejeki (B1/NR/BB-) received USD650m orders for its USD350m 8.25% 5nc3 bond, priced at par; IPT at 8.5%. Samvardhana Motherson (NR/BB+/NR), an auto parts manufacturer, meets with investors tomorrow for a planned USD Reg S bond issuance.

¨      SGD Credit Market: Yielder names garner interest as oil prices stabilize. There was a mild flattening in the short-to-mid curve, with the 2y rising by 0.5bps to 1.76% while the 5y fell by 0.2bps to 2.14%. HY names such as CWTSP and GEMAU appeared tighter by 5-8bps (according to Bloomberg) as Brent Oil prices continued to stabilize at the USD49/bbl level, while the Capitaland space (CAPLSP, CAPITA and CCTSP) garnered interest. In the primaries, KFW (Aaa/AAA/AAA), a German government-owned development bank, printed a SGD500m 2y at 1.585%.

¨      MYR Credit Market: New MYR3.64bn Sukuk from Duke 3. MARC assigned AA-/Stable to Duke Fasa 3 (Duke 3) which is the new concessionaire for 32.1km expressway linking Wangsa Maju to Kerinchi Link with a 53 years and 6 months concession tenure. The corporate market was traded moderately where MYR464m exchanged hands. Short-dated Caga 4/17-12/18 accounted for a third of the trading activity, inching 4-10bps lower to 3.59%-3.81%. Elsewhere, JEP 6/32 fell 5bps to 5.26% on MYR60m trades. MGS curve flattened as 3y settling flat at 3.25%, while 7y and 10y ended lower at 3.82% (-4bps) and 3.93% (-1bps) respectively. MYR depreciated for the third consecutive days to 4.1450/USD.