Sime Darby to Pare Debt with Proposed MYR2.37bn Share Placement

24 August 2016

Credit Markets Update

Sime Darby to Pare Debt with Proposed MYR2.37bn Share Placement

¨      APAC USD Credit Market: Asian bond markets were mostly sideways with the iTraxx AxJ IG edging slightly higher to 111.7bps (+0.7), while IG spreads widened 1.5bps to 184.7bps, though non-IG bond yields remained flat at 6.25%. USTs were mostly unchanged with the exception of the 3y which gained 1bp to 0.86% and the 30y which declined 1bp to 2.23% despite US July new home sales surging 12.4% MoM to 654k. In the primary market, new issues garnered strong BTC i.e. Small and Medium Business Corp (Aa2/AA/AA-) getting USD3.3bn orders for USD500m 10y bonds sold at T+67.5bps against IPT at 90bps area (6.6x BTC). China Orient Asset Management (A3/NR/A) was oversubscribed 6.4x for USD650m 5y bonds priced at T+138bps; IPT at +170bps area, while Hyundai Capital (Baa1/A-/BBB+) received over 6x BTC for USD400m 3y bonds at T+82.5bps against IPT at 105bps area. In Australia, Fortescue Metals receives 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.

¨      SGD Credit Market: Interest observed in higher grade papers; July CPI below expectations. There was a bull flattening in the short-to-mid swap curve, with the 5y falling by 3.2bps to 1.69% while the 2y dipped 2.1bps to 1.43%. Interest was observe for higher grade names such as CHEUNG, AREIT and mid-to-long dated HDBSP papers which were 5-10bps tighter (according to Bloomberg). Ausgroup (NR) announced that it is expecting a net loss for its 4QFY6/2016 results. Yesterday’s Singapore July CPI came in at -0.7%, slightly below consensus of -0.5%, which will increase investors’ bets of a MAS easing decision in mid-Oct.

¨      MYR Credit Market: MGS yields fell 4bps to 2.86% as investors turned cautious ahead of the Fed symposium at Jackson Hole (25-27 Aug), while keeping an eye on the second session of lower oil prices. BNM announced that it would auction MYR3.0bn of 10y MGS 8/26 (Reopening) on 25 Aug (Thursday), which was last quoted at WI of 3.55/3.53%. Secondary flows were active at MYR1.5bn (+2.6x) led by the newly-issued Lebuhraya Duke Fasa 3 and PTPTN complex. Elsewhere, Sime Darby (Baa1/NR/BBB+) reported a net profit of MYR2.6bn (+2.0% YoY) in FY16 due mainly to the tax credit of MYR128.4m as a result of the recognition of an Indonesian special tax incentive on fixed assets revaluation of MYR348.5m. The company also announced its plan to raise MYR2.37bn through share placement to cover its borrowings (50.5%), capital expenditure (40%) and working capital requirements (8.9%). On the macro front, July’s inflation rate to be released later today is expected to fall 1.1% YoY from 1.6% previously.