¨ Asian bond stayed firm as Chinese FI/Banks flood primary markets. Primary markets remained busy

13 September 2016

Credit Markets Weekly

Asian FIs Flood USD Primary Market

                                                                      

APAC USD CREDIT MARKETS

¨      Asian bond stayed firm as Chinese FI/Banks flood primary markets. Primary markets remained busy, although total weekly issuances dipped to USD5.4bn compared to USD7.8bn in the previous week. Chinese FI/Banks such as China Everbright Bank (Baa2/NR/BBB) and China Huarong (Baa1/NR/A-) poured into the markets registering strong interest. Other USD IG bond deals includes Woodside Petroleum (Baa1/BBB+/BBB+), Union Life Insurance (Baa3/NR/NR), NongHyup Bank (A1/A+/NR) and BOC Aviation (NR/BBB+/A-).

¨      Asian CDS spreads tightened 4bps WoW to 108bps, while IG spreads and average HY bond yields narrowed 3bps to 180.5bps and 6.28% respectively. Separately, Treasuries fell particularly at the longer end with the 10y and 30y adding 7-12bps to 1.67% and 2.39% respectively supported by hawkish commentary from Fed’s Rosengren and Kaplan.

¨      On the ratings front, Jaguar Land Rover got upgraded by Fitch to BB+/Sta from BB- based on its delivery on increasing products in its portfolio, increasing geographic diversity and expanding capacity outside of UK, while maintaining robust profitability, and a strong financial profile. Moody’s downgraded POSCO Engineering & Construction Co. Ltd. to Ba1/Sta from Baa3 following the losses reported in 1H 2016 due to cost overruns in its steel plants in Brazil.

SGD CREDIT MARKETS

¨      Dyna-Mac’s early bond redemption; Ausgroup Seeks 2y Maturity Extension. Last week’s issuance space was bereft of any prints, save for a lone issuance by Singapore’s Housing Development Board with a SGD600m 10y at 2.035%. YTD, issuances have hit SGD16.6bn, or 4.6% lower than a similar period last year. HY names have failed to find a firm footing again after recent credit events have seen investors spurn the HY space. Investor sentiment appeared tilted towards yielder names like PREHSP, SSREIT as well as perpetuals like OCBC and UOB AT1. The O&G space got a boost of positive news this week as Dyna-Mac Holdings (NR) announced that it was seeking a consent solicitation for the early redemption of its sole outstanding SGD50m DMHLSP 8/17, which subsequently saw its price rally by 7% from c.92. Meanwhile, Rickmers Maritme (NR), a container chip chartering company, announced that it was proposing a consent solicitation for its sole outstanding SGD100m RICKSP 5/17 where it would swap existing bonds for a step-up perpetual convertible, though it has not provided the salient terms at this point. Marco Polo Marine (NR) is seeking a meeting with bondholders of its only outstanding SGD50m MPMSP 10/16 for “discussing with the Noteholders the various options in connections with the Notes’’. Lastly, Ausgroup is seeking consent to extend the maturity of its sole outstanding SGD110m AUSGSP 10/16 by an additional two years and also removing its financial covenants which includes minimum Total Equity and EBITDA Interest Coverage. In addition, bondholders will gain security over Ausgroup’s Port Melville’s assets.

¨      Strong declines in SOR; SG Aug NODX eyed this Friday. There was a strong parallel decline in the short-to-mid SOR curve, with the 2y and 5y declining by around 8-9bps to close at 1.37% and 1.62% respectively. Looking ahead, investors will be eyeing Singapore’s July Retail Sales (15-Sept) and August NODX (16-Sept) for an indication of its growth trajectory.

MYR CREDIT MARKETS

¨      YTD issuance increased to MYR65bn. LPPSA (GG) attracted 4x BTC for its maiden MYR3.4bn issuance across 3y-30y which was priced at 3.50-4.90%; alongside Cagamas MYR470m 1y at 3.38% which also printed USD130m 1y at 1.60%. We expect more issuances from the national mortgage corporation with heavy maturities of MYR2.2bn coming in Oct and Nov. Secondary activities increased 51% to MYR3.7bn with almost half of the trading activities made up of infrastructure names such as PLUS, JEP, MEX II and SEB. PLUS was the most active as MYR550m of tranche ’22-’33 ended the week flat to -4bps at 3.93%-4.55%. Several rating action during the week – MARC downgraded DRB-Hicom A+/Sta (from AA-/Neg); Bahrain Mumtalakat was downgraded to A1/Neg by RAM (from AA3/Sta) simultaneously with its sovereign rating change of Bahrain; while Media Prima was placed on negative outlook by RAM.

¨      Offshore players continued to flow into the domestic market. Foreign holdings in the MGS increased by another MYR1.6bn in Aug, while foreign players also added MYR2.5bn in the GII space following the inclusion into the JP Morgan’s GBI-EM Global Diversified Bond Index. Up till August, we saw net inflow of MYR40bn into the MGS+GII in 2016 as low global yields continue attract offshore funds in searching yields in the EMs. The govvies moved mixed last week as investors positioned their portfolio amid BNM and ECB meeting. BNM as expected kept the OPR rate at 3.00% while the economy grows within its projections of 4.0-4.5% in 2016. Towards the end of the week, the 3y MGS fell 1bp WoW to 2.84%, 5y MGS (+2bps to 3.17%), 7y (+2bps to 3.43%) and 10y (-5bps to 3.53%). The MYR strengthened 0.4% to 4.0723/USD as Brent increased 2.5% WoW to USD48/bbl. Investors to focus on the MYR3bn 5y MGS Reopening tendering on the 14-Sep, which coincides with a large MGS maturity of MYR12.7bn on the 15-Sep.