Credit
Market Watch: Summary for week ending 22-Jul
·
MYR Credit:
Ø MGS market
softened mid-week as MYR weakened against the USD, with yields higher by 4-8bps
WoW. PDS yields largely moved in line, up by 1-9bps WoW.
Ø New issue: PTPTN
raised MYR3.5b through multi-tranche GG bonds with tenors from 7 years up to 25
years. Later the week Jambatan Kedua tapped MYR2.6b in a similar multi-tranche
GG issuance although yields were priced marginally higher due to the change in
market condition.
Ø Econs update: 1)
Index of leading economic indicators contracted for the 7th consecutive month
on YoY basis -0.8% in May, pointing to further slowdown in 2Q16 GDP growth, but
the rate of decline improved from -2.7% YoY in April, perhaps a teething sign
of stabilisation. 2) Headline inflation eased to 1.6% YoY in June (May: 2.0%).
Our economic research revised down 2016 inflation forecast to 2.3-2.8% from
2.8-3.0%.
Ø UMW Holdings:
Rating was downgraded by 2 notches to AA2/stable from AAA/negative by RAM,
citing weakened credit profile with profitability likely to remain weak and
debt level to stay high for 1-2 years as business headwinds continue and UMW is
anticipated to spend MYR2.5b on new plants. Its automotive segment is
challenged by narrowing margins and market share loss while the O&G segment
plunged into the red on low rig utilization, low charter rates and impairment
charges. Profitability deteriorated with overall EBITDA down by 46% YoY and FFO
down 38% YoY in FY15. Total debt ballooned to MYR6.01b end-2015, FFODC weakened
to 0.17x from 0.38x in FY14 and gearing rose to 0.65x from 0.45x in FY14.
Ø Relative value:
UEM Sunrise 22 offered some value last traded 4.69%, which is 8bps wide from
our fitted line and 22bps higher than where IJM Corp 22 was last dealt.
·
Asian Credit:
Ø UST curve
bear-flattened along the 2y10y with 2y and 10y UST yields up 4bps and 2bps
respectively WoW. Asian USD credit market remained constructive with spreads
tightening further. JACI composite -3bps, JACI IG -3bps and JACI HY -5bps WoW.
Ø Fitch in its
credit outlook report highlighted the negative trend of sovereign ratings.
Emerging markets was the focus with pressure points primarily emanating from
weak commodity prices while advanced economies are persistently constrained by
high government debt. Under Fitch’s coverage, some 22 sovereigns were on
negative outlook and only 6 on positive outlook, pointing to continued rating
downward pressure ahead.
Ø Rating changes:
SMRT’s outlook was raised to AAA/stable from AAA/negative by S&P following
the announcement of New Rail Financing Framework, which is expected to
significantly lower SMRT’s annual capex requirement in an asset light model and
increase the predictability of profits for the company under a risk-sharing
mechanism with the Land Transport Authority of Singapore.
·
CDS: EM Asia 5y CDS spreads
mostly widened led by Malaysia +5bps, while China, Indonesia, Korea and
Philippines +2 to +3bps WoW.
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