Banks Flood the Primary Market

7 September 2016

Credit Markets Update

Banks Flood the Primary Market

¨      APAC USD Credit Market: Asian bond markets ended firmer with IG credit spreads and HY bonds tightening 1-2bps as USTs declined 5-7bps after the larger-than-forecasted drop in Aug ISM Non-Manufacturing number (51.4 versus 54.9 consensus) as it followed the disappointing Manufacturing ISM last week. The 2y UST fell 5bps to 0.72%, the 10y dropped 7bps to 1.536%, while Brent prices declined 0.78% to USD47.26/bbl. Banking names led the primary market – KDB (Aa2/AA/AA-) sold USD1bn 3-10y bonds at +55bps to 57.5bps (IPT: +70bps area); and MUFG (A1/A/A) printed USD4bn bonds across 5y-10y tenure. Other banks that are approaching investors include State Bank of India (Baa3/BBB-/BBB-) for USD AT1 bond, MUFG is planning for its first green TLAC bond, while Industrial Bank (Baa2/NR/BB+) is conducting the roadshow starting today.

¨      SGD Credit Market: Rickmers proposes perpetual convertible for debt swap. There was a mild decline in the SOR curve, with the 2y falling by 2.5bps to 1.39% while the 5y dipped 1bp to 1.67%. Interest appeared predisposed towards yielder names like ASPSP, PREHSP and FIRTSP. Rickmers Trust Management (NR) 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. In addition, it has syndicated a new financing facility of up to USD260m which would extend the maturities of a significant portion of its secured debt to 2021 (from less than a year previously).

¨      MYR Credit Market: Cagamas priced MYR470m 1y MTN at 3.38% (KLIBOR-25bps). The new issuance appears to be pricier than the recently printed USD130m MTN at 1.60% (or MYR equivalent coupon of c.3.24% based on Bloomberg’s conversion post-swap). We expect more issuances from the national mortgage corporation given the heavy maturities of MYR2.2bn in Oct-16 and Nov-16. Elsewhere, GovCo (GG) issued a MYR100m 3Y MTN at 3.50% for the subscription of Proton’s redeemable convertible cumulative preference shares. The govvies market ended firmer with the 3y-10y MGS benchmark settling flat to -5bps at 2.83%-3.52% as some investors probably positioned for a rate cut by BNM later today. The corporate market stayed active with MYR727m transacted. Top traded was PLUS 1/31 (MYR120m) ending the day unchanged at 4.448%. On the macro front, Malaysia’s foreign reserves stayed stable at USD97.5bn as at 30-Aug which covers 8.1 months of retained imports and 1.2 times of short-term external debt.