Banks Tap the USD Market; El-Nino Hits Plantation Firms’ Profitability

5 September 2016

Credit Markets Weekly

Banks Tap the USD Market; El-Nino Hits Plantation Firms’ Profitability

                                                                      

APAC USD CREDIT MARKETS

¨      Muted Asian credit markets with investors awaiting the key US jobs report especially towards the end of the week with IG credit spreads tightening 1.1bps to 183.5bps, whereas speculative bond yields increased 3bps to 6.28%. Asian CDS was marginally tighter (-1bp) to 112.3bps though Brent prices tumbled -6.2% WoW to USD46.8/bbl. The miss in August NFP at 151k (consensus: 180k; prior: 255k) and slower growth in hourly wages at 0.1% MoM (consensus: 0.2%) undermined the Fed’s case for an interest rate hike this year whereby UST yields bull steepened (plunging 1-6bps) with the 2y at 0.79% (-6bps) and 10y at 1.60% (-3bps).

¨      Over to ratings, Moody’s upgraded the ratings of 4 Chinese financial leasing companies (CCB Financial Leasing, CMB Financial Leasing, ICBC Financial Leasing and China Development Bank Financial Leasing) to reflect their strategic importance to their respective parent banks. Meanwhile, in a similar action to Moody’s, Fitch revised Fortescue Metals’ outlook to BB+/stable from BB+/Neg premised on its improved liquidity position, coupled by reduction in production costs and debt levels.

¨      Moving to downgrade actions, Ascott REIT’s outlook was slashed to negative from stable; ratings affirmed at Baa3 premised on weaker leverage profile following its debt funded acquisitions spree with debt/total deposited assets rising to 46% (June-15: 44%), net debt/EBITDA at 8.5x and interest coverage declining to 3.5x (June-15: 4.1x) as at end-June 16. Korean issuers were in the spotlight with Lotte Shopping suffering a 1-notch downgrade by Fitch to BBB-/Sta from BBB on concerns over its weaker credit metrics while utility player SK E&S was handed a negative outlook by S&P (BBB ratings affirmed) driven by deteriorating financials metrics due to low profitability and high debt.

¨      Issuers rushed into primary markets as seen in the earlier part of the week which saw USD7.3bn deals priced against USD2.5bn recorded in the prior week, bringing the YTD issuance to USD154.5bn. Quality banking names returned to the markets as seen with the jumbo issuance by CBA, DBS’ AT1 Perp and UOB’s 10.5nc5 B3T2 bond, followed by benchmark issues from infrastructure/property names like Chongqing Western, Road King Infrastructure, Greenland Global and Far East Consortium.

SGD CREDIT MARKETS

¨      Primaries are scant ahead of US NFP; MAS revises loan framework for refinancing. The primary issuance space was scant last week as investors awaited the release of the US Aug NFP due last Friday night. Interest continued to be tilted towards high grade names like SPSP, LTAZSP as well as property names like OHLSP and GUOLSP. Meanwhile, ASL Marine (NR) announced a rights issue of USD25m following its 4QFY6/16 net losses partially attributed to its full impairment of Swiber receivables as well as vessels in its chartering fleet. Ezion (NR) announced a downward revision in its 2Q16 results, with a revised net income of USD8.1m (from USD19.8m) due to additional impairment from an associate. MAS announced that it was updating the Total Debt Servicing Ratio framework such that the refinancing of residential loans will be exempted from the 60% threshold, while adding that these measures did not represent a relaxation of property cooling measures.

¨      Parallel decline in the SOR curve. There was a parallel decline in the short-to-mid SOR curve by between 3.4-3.8bps, with the 2y and 5y closing at 1.44% and 1.70% respectively. Looking ahead, investors will be taking cue from global macroeconomic data due to lack of key domestic data to be released this coming week.

MYR CREDIT MARKETS

¨      Yields moved sideways as investors awaited US employment numbers. Activities were tilted towards off-the-run short-dated govvies while the 3y-10y MGS benchmark closed at 2.85-3.55% (-2 to +3bps WoW) as MYR weakened 1.8% to 4.0893/USD after Yellen’s hawkish speech in the previous week. Toll road bonds were the most active last week – PLUS ‘24-36 saw MYR485m changed hands at 4.10-4.76% (-12bps to +1bp), followed by LDF3 ’32-39 which ended mixed at 5.17-5.60% (-7bps to +6bps). Overall, total PDS volume was 55% lower at MYR2.4bn amid the National Day holiday and quiet primary market last week. Investors to focus on the MPC meeting this week where we expect BNM to maintain the OPR at 3.00%.