O&G Players Continue to Post Dismay Profit

11 August 2016

Credit Markets Update

O&G Players Continue to Post Dismay Profit

¨      APAC USD Credit Market: Another lackluster session. IG spreads and Asian CDS gained marginally to 191.2bps and 114.2bps respectively, taking cues from the weak performance in Asian equities, although investors favoured HY bonds as yields tighten 2bps to 6.35%. USTs extends rally as yields shed 3-4bps following the strong reception of the 10y UST auction amid further declines in oil prices (Brent: -2.1% to USD44.1/bbl). The UST 2y dropped 3bps to 0.68%, while 10y decreased 4bps to 1.51%. Moving to primaries, China’s Bank of Communications (A2/A-/A) via its Hong Kong branch priced USD550m 3y FRN at 3mL+87.5 against IPT at 3mL+115bps, while utilities player Greenko Energy (NR/B+/B+) received 8.4x BTC for its USD500m 7nc3 green bonds priced at 4.875% against IPT of 5.375% area.

¨      SGD Credit Market: Nam Cheong and Ezion profits face continued headwinds. There was a bull flattening in the short-to-mid SOR curve, with the 5y falling by 7.5bps to 1.73% while the 2y dipped 5.5bps to 1.47%. Interest was observed in better grade names like LTAZSP, SPOST and STSP as well as yielder names like OHLSP and ASPSP. Nam Cheong announced its 2Q16 results where revenue fell 39% YoY to MYR117.4m largely due to a decline in shipbuilding income while net profit dropped 75% to MYR2.7m. Meanwhile, Ezion’s 2Q16 revenue slipped 7% to USD83.7m while net income fell 31.5% to USD19.8m as gross profit tightened to 21% (from 35% in 2Q15) due to increased costs from the deployment of additional rigs.

¨      MYR Credit Market: Yield searching increased foreign demand on the local govvies. Foreign players added another MYR5.8bn in both MGS and GII in July (June: +MYR7bn) to 51.9% of the total MGS outstanding (GII: 10.6%). Govvies rallied across the 3y-10y MGS benchmark which declined 2-4bps to 2.93%-3.61% amid the stronger MYR of 3.99/USD. Meanwhile, BNM to auction MYR3bn 15y GII 9/30 Reopening on Friday which will coincide with Malaysia’s 2Q GDP number to be released on the same day (consensus: 4.0%; 1Q16: 4.2%). The WI for the 15y GII was seen quoted at 4.20/10% yesterday. In the corporate market, the Class B Notes for Premium Commerce Bhd, the asset-backed securitization for Tan Chong Motor, was upgraded to AA2/Pos by RAM due to the faster-than-expected deleveraging of the Class A Notes. Secondary volume totaled at MYR550m. Among the gainers were RHB subdebt 11/22c17 (-11bps to 4.204%), Tanjung BP 8/19 (-3bps to 4.197%) and PASB (-8bps to 4.139%).