Lippo Karawaci Outlook On Negative

19 October 2016

Credit Markets Update

Lippo Karawaci Outlook On Negative

¨      APAC USD Credit Market: Mixed Asian Credits. IG credit spreads crept up 2bps to 193.7bps, whereas average speculative bond yields held firm at 6.46%. Asian CDS tightened slightly to 117.7bps (-0.4bp) tracking the gains in Chinese equities. In the US, the disappointing Sep core CPI print of 0.1% MoM (consensus: 0.2%; Aug: 0.3%) drove UST yields lower across the curve. UST 10y settled at 1.74% (-3bps) and 2y edged 2bps lower to 0.80%. Moving to ratings, Moody’s slashed Lippo Karawi’s outlook to negative; affirmed at Ba3 surrounding the uncertainty in the Indonesian property developer’s ability to complete two planned asset sales (IDR1.7trn) and achieve its revised property sales target of IDR3.5trn. Furthermore, Moody’s projects its next 12-months debt/EBITDA to remain elevated at 4.5x and EBIT/interest cover to stay low at 2.5x, within its rating downgrade trigger. Turning to primaries, Yuzhou Properties (B1/B+/BB-) priced USD250m 7nc4 bond at 6% around guidance levels of 6% area, whereas Huai An Traffic Holding (NR/NR/BB+) sold USD300m 3y bond offering at 5.2%. In the pipeline, China Great Wall Asset Management (A3/A-/A) has mandated banks for potential USD bond issuance and will hold investor meetings tomorrow in Hong Kong and London. Similarly, BOCOM Leasing (A2/A-/A) will meet with investors in Asia and Europe for a potential Reg S bond offering.

¨      SGD Credit Market: Sabana REIT results weighted by weaker industrial conditions. There was a fall in the short-to-mid SOR curve, with the 2y declining by 5.5bps to 1.35% while the 5y dipped 6.5bps to 1.73%. Papers such as GUOLSP and CREISP as well as safer papers like MRTSP appeared tighter. Meanwhile, Sabana REIT (NR) 3Q16 results saw revenue decline 9.7% YoY to SGD23m while net income dipped 44.6% to SGD6.5m largely due to negative rental reversions, non-lease renewal of its 218 Pandan Loop property and higher expenses such as service & maintenance expenses. In addition, tax & land expenses also increased due to conversion to multi-tenanted lease arrangements and non-triple net master leases.

¨      MYR Credit Market: Govvies moved mixed before inflation data today. MGS ended mixed with the 3y rising 2bps to 3.00%, 10y MGS declined 1bp to 3.60% as MYR recovered to 4.19/USD. Inflation number to be released at 12pm later today is unlikely to change the BNM’s accommodative stance with consensus expecting Sep CPI to stay low at 1.7% (Aug: 1.5%), below the central bank’s target of 2-3% for 2016. Elsewhere, corporate activities were concentrated on PTPTN 12/24 (-0.1bps to 4.028%) and Cagamas 4/17-10/19 (-32.2 to -5.0bps to 3.269-3.700%).