Investor Brush off Tensions in Turkey; Otto Marine Extend Maturity; UMW Downgraded to AA2

19 July 2016

Credit Markets Update

Investor Brush off Tensions in Turkey; Otto Marine Extend Maturity; UMW Downgraded to AA2

¨      APAC USD Credit Market: Investor brush off tensions in Turkey as Asian CDS narrowed 3bps to 118.4bps, pushed lower by Korean IG credits (KEPCO, Hyundai Motor and Korea EXIM Bank) along with PETMK. IG spreads and non-IG bond yields were relatively unchanged at 202.3bps and 6.38%. USTs weakened across the curve as 10y gained 3bps to c.1.58% while 2y rose 2bps to c.0.68% on easing geopolitical tensions following the failed military coup in Turkey last week. On the other hand, S&P affirmed Beijing Enterprises Holding (BEH)’ rating at BBB+/Neg as it views BEH as a core subsidiary of Beijing Enterprise Group and is likely to receive extraordinary government support if deem necessary, with rising leverage at BEH following the acquisition of EEW Holdings in Feb-16. Additionally, Moody’s anticipates mix set of 2Q results from Asian O&G players as crude oil prices recovery (2Q16 Brent average: USD46.7/bbl; 1Q16: USD35.2/bbl) though regional gross refining margins (GRM) decline (average GRM weakened to USD3.9/bbl in 2Q16 from USD6.6/bbl in 1Q16). Turning to primaries, Busan Bank (Issue rating: Baa2/NR/NR) priced USD250m 10y B3T2 bond at T+210 against IPT at +240bps area. In the pipeline, India’s Glenmark Pharmaceuticals Ltd (NR/BB/BB) plans to raise USD200m Reg S non-convertible bond and will investor meetings across Asia and Europe tomorrow.

¨      SGD Credit Market: Otto Marine receives approval to extend bond maturity. The short-to-mid SOR curve marginally rose by around 0.45bps, with the 2y and 5y closing at 1.32% and 1.62% respectively. Otto Marine (NR) received approval for its consent solicitation exercise to extend the maturity on its existing SGD70m OTMLSP 8/16 by 6 months to Feb-2017 to facilitate the delisting of Otto Marine from the SGX, and once delisted the sole outstanding bond will be fully redeemed. Frasers Centrepoint Ltd (Baa1/BBB+/-) saw its 2Q16 net income fall by 6% to SGD22.9m mainly due to a decline in contribution from one of its malls due to ongoing asset enhancement works, which has also resulted in aggregate occupancy rates falling to 90.8% (from 92% in 1Q16).

¨      MYR Credit Market: Market moved sideways after strong rallies over the past 2 weeks. The MGS benchmark settled flat at 2.89-3.57% (-1 to +3bps) as MYR weakened 0.8% to 3.9775/USD. Nevertheless, yields on the 3y-10y GII benchmarks inched 1-29bps lower amid news on KWAP’s plans to become full-fledged Islamic pension funds, according to the CEO of the second largest domestic pension fund in news reports. Over in the corporate market, short-dated Cagamas 7/17 on MYR200m trades realigned lower to 3.25%, 53bps lower from the last trade in 2013. Overall, we saw moderate trading activity of MYR468m in the corporate market yesterday, compared to daily average of MYR800m last week. Meanwhile, UMW was downgraded to AA2/Sta, from AAA/Neg, underpinned by deteriorated operating performance and weakened debt profile.