25 July 2016
Credit Markets Weekly
Investors On The Sidelines Ahead of FOMC and BOJ
APAC
USD CREDIT MARKETS
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Cautious
market before upcoming July FOMC meeting. Asian CDS traded 2bp tighter to 119.2bps, remaining on
its tightening path since early Jul (140bps) on improved risk sentiment. IG
credit spreads and non-IG bonds tightened 2-3bps to 200bps and 6.35%
respectively. USTs climbed 1-4bps higher WoW on US housing, jobs and
Preliminary PMI numbers, though it was moderated by falling oil prices (Brent:
-4% to USD45.7/bbl). Accordingly, the 10y added 2bps to c.1.56%, while the 2y
increased 4bps to 0.70%.
¨
On ratings, S&P
affirmed Beijing Enterprises Holding (BEH)’s 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 deemed necessary, with elevated leverage at
BEH level following the acquisition of EEW Holdings in Feb16. Additionally,
Moody’s anticipates mix set of 2Q results from Asian O&G players as crude
oil prices recover (2Q16 Brent average: USD46.7/bbl; 1Q16: USD35.2/bbl) though
regional gross refining margins (GRM) declined (average GRM weakened to
USD3.9/bbl in 2Q16 from USD6.6/bbl in 1Q16).
¨
Primary
deals slowed to USD5.4bn from USD8.7bn in the earlier week, with most issues garnered
strong BTC; averaging 5.7x. Chinese credits dominated most of the new issuances
i.e. Greenland HK’s USD450m 3.875% 3y bond priced at 4.15%, followed by China
Railway’s USD500m 10y at T+170bps and China Minmetals’ USD700m 4.2% 10y and
USD300m 3.125% 5y at T+265bps and T+205bps respectively.
SGD
CREDIT MARKETS
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Quiet
primary space; Retail REITs’ performance impacted by lower occupancy levels. The issuance space was
quiet this week even as some secondary flows were seen in O&G/ yielder
names like OLAMSP, TATAIN, NOLSP and GALVSP as Brent oil prices held above
USD46/bbl throughout the week, before closing a tad lower at USD45.7/bbl. Two
retail REITs saw its end-June results decline due to lower occupancy rates,
with Frasers Centrepoint Ltd (Baa1/BBB+/NR) net income falling 6% to SGD22.9m,
while CapitaLand Commercial Trust core net profit dipped 3.3% to SGD74.3m. In
the O&G segment, Otto Marine (NR) received approval from bondholders to
extend the maturity of its sole outstanding SGD70m OTMLSP 8/16 to align the
bond maturity with the delisting of Otto Marine from the SGX. Meanwhile, Keppel
Corp (NR) saw its net profit decline 47% YoY to SGD219m dragged down by its
O&M contributions. In addition, its O&M orderbook fell to SGD4.3bn
(from SGD8.6bn in 1Q16) as Sete Brasil’s total orderbook of SGD4bn has been
excluded after Sete filed for judicial recovery.
¨
SOR
rises.
There was a rise in the short-to-mid SOR curve, with the 2y rising by 13bps to
1.45% while the 5y saw similar movements by 9bps to 1.71%. Looking ahead,
investors will be eyeing the Singapore June CPI (25-Jul) and June Industrial
Production (26-Jul).
MYR
CREDIT MARKETS
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Market
muted before FOMC and BOJ meeting. The local currency recorded the
biggest weekly drop of 2.8% since Sep-15 to 4.06/USD on lower oil prices and
uncertainties before FOMC and BOJ meeting this week. MGS yields spiked 4-8bps
up last week across the 5y-15y benchmarks on quiet trading week as market
participants were focusing on the MYR3.5bn 5y GII Reopening which attracted
2.45x BTC at average yield of 3.401%. The corporate market were also softer on
average daily trading activity of MYR550m, compared to above MYR800 in the
previous week. Short-tenure Cagamas 10/16 and 7/17 were among the most active,
realigned 50-53bps lower to 3.138-3.25%. Elsewhere, MAHB Pc24 settled 3bps
lower at 4.699% on MYR160m trades.
¨
YTD
GG issuances jumped to MYR18.7bn. A total of MYR6.1bn
government-guaranteed bond/Sukuk issued last week from Jambatan Kedua
(MYR2.6bn) and PTPTN (MYR3.5bn), while CIMB Bank printed MYR1.35bn 10nc5
sub-debt (AA2/AA+) at 4.77%. Meanwhile, RAM downgraded UMW Holdings to
AA2/Sta, from AAA/Neg, as operating performance and financial profiles
weakened across its automotive and O&G divisions.
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