More Property and Commodities Players on Negative Outlook

29 August 2016

Credit Markets Weekly

More Property and Commodities Players on Negative Outlook

                                                                      

APAC USD CREDIT MARKETS

¨      UST yields bear flattened, surging 5-10bps WoW with the 2y at c.0.84% and the 10y at c.1.63% particularly after Janet Yellen’s hawkish speech at the Jackson Hole symposium which boosted rate hike expectations in the coming months given the recent stronger US economic prints. Over to Asian credit markets, speculative bond yields traded wider by 3bps to 6.28% while Asian CDS was a tad wider (+1bp) to 113.3bps. On the other hand, IG credit spreads were flat at 184.6bps.

¨      Over to ratings, Fitch upgrades Modern Land China to B+/Sta from B premised on its lower leverage as compared to peers and higher contracted sales especially in 2016. In Australia, Fortescue Metals received an upgrade by Moody’s to Ba2/Sta from Ba3 on the back of its reduced debt and cost levels, improved cash position and the rebound in iron ore prices with Moody’s anticipating its debt/EBITDA ratio to improve from 3.8x in Dec-15 to 2.0-2.5x over the next 1-2 years.

¨      On the flipside, China Vanke’s BBB+ rating was affirmed by S&P. The outlook has been slashed to negative from stable due to the increasing likelihood of tension among key shareholders and management which could be detrimental to the company’s competitiveness, reputation and good financial management amid the slowdown in the Chinese property sector. Furthermore, COFCO HK has been placed on review for downgrade by Moody’s following the company’s announcement of the acquisition of the remaining stake in Nidera Capital which (COFCO will own a 48% controlling stake in Nidera post acquisition) could lead to a material increase in leverage and exposing the group to Nidera’s weak commodity trading business with net debt/EBITDA anticipated to rise over 7.0x at end-17 from 6.5x previously forecasted. Elsewhere, S&P affirmed Swire Pacific at A-, however its outlook was slashed to negative from stable on the back of its expected higher leverage profile amid high capex in its property, aviation and beverage divisions as well as the poor earnings and profitability in the oil & gas segment with debt/EBITDA projected to rise to 4.5-5.0x over the next 12-18 months.

¨      Quiet primary markets as issues remained on the sidelines with USD2.5bn deals priced against USD2.4bn in the previous week. Nevertheless, issuances from China Orient Asset Management (A3/NR/A), Small and Medium Business Corp (Aa2/AA/AA-), Hyundai Capital (Baa1/A-/BBB+) and Xinyuan Real Estate (NR/B/B) garnered average BTC in excess of 6.0x.

SGD CREDIT MARKETS

¨      Stronger oil prices as O&G continues to be hit by negative news. The primary issuance space was mostly quiet save for an issuance by the National University of Singapore (Aaa/-/-) with a SGD100m 5y at 1.81%. YTD issuances are now standing at SGD16bn, or 6.7% lower compared to a similar period last year. Interest was slanted towards quality/ quasi names like HDBSP, CHEUNG and AREIT. Brent oil prices hovered strong around the USD49/bbl level throughout the week while some interest was seen in riskier names like EZISP and HYFSP. Ezra Holdings (NR) announced that its 20% owned associate company, KLSE-listed Perisai Petroleum Teknologi Bhd, will be commencing discussions and engaging with holders of its sole outstanding SGD125m PPTMK 10/16. Meanwhile, ASL Marine (NR), a ship building and chartering company, announced that it is expecting a net loss in its 4QFY6/16 results partially due to full impairment of its Swiber receivables. Singapore’s July CPI came in at -0.7%, below consensus of -0.5%, potentially increasing bets for a MAS easing decision in mid-Oct.

¨      Flattening in the SOR curve. There was a bear flattening in the short-to-mid SOR curve, with the 2y rising by 5bps to 1.43% while the 5y rose 2bps to 1.67%. Looking ahead, investors will be eyeing the Singapore July Bank Loans (31-Aug) and Aug PMI numbers (2-Sept).

MYR CREDIT MARKETS

¨      MGS curve steepened before Jackson Hole Symposium. Activities were focused in the short-dated MGS papers as investors were cautiously waiting for more guidances from Yellen’s speech last Friday in regard of next US rate hike. This has led to weaker demand of 1.75x BTC for the MYR3bn 10y MGS Reopening auction, which concluded at average yield of 3.563%. Towards the end of the week, the 3y MGS fell 6bps WoW to 2.84% as Malaysia’s inflation eased further to 1.1% for July; while 10y rose 3bps WoW to 3.55%. MYR settled flat at 4.01/USD level on stable oil prices.

¨      LDF 3 gained post-issuance. Yields for the new highway bonds declined 36-84bps below coupon across tranche 8/26-8/39 on combined MYR892m trades. Elsewhere, we saw mixed movements on PTPTN after the large issuance large month (-18bps to +3bps). On the rating front, oil & gas offshore player, Alam Maritim Resources was downgraded to BBB+ from A by MARC; with negative outlook as its financial profile deteriorated amid declining order book and the subdued oil & gas sector. Primary market was quiet, however Gas Malaysia established a MYR700m ICP/IMTN programme with MYR400m will be utilized for its pipeline expansion plan over the next 5 years.