Moody’s Revised POSCO to Stable; Mudajaya Plans USD200m 10y EMTN

27 October 2016

Credit Markets Update

Moody’s Revised POSCO to Stable; Mudajaya Plans USD200m 10y EMTN

¨      APAC USD Credit Market: Another stable session for Asian credits though Asian CDS traded a tad wider at 115.5bps. IG spreads stayed firm at 190.7bps, while average HY bond yields slip almost 1bp to 6.43%. The weakness in European government bonds extended to USTs’ with yields rising 2-4bps across the curve with the 2y closing at 0.87% (-2bps) and 10y at 1.79% (-4bps). UST were also weighed down by the weakness in US equities and declining oil prices (-1.6% to USD50/bbl). Turning to ratings, Moody’s revised Posco’s outlook to stable from negative; rating affirmed at Baa2 to reflect an improving financial profile underpinned by a rebound in earnings (+25% YoY growth) and debt reductions (-14% decline in total debt). Moody’s expects its debt/EBITDA to improve to 3.8x in 2016 from 4.7% in 2015, while its EBIT/interest should also improve to 4.1x from 3.2x over the same period. Though there were no deals prices yesterday, investors can look forward to a busy primary space later today. Sirius International Group (NR/BBB/BBB-) may price USD 10y bonds with IPT at +300bps. China Development Bank (Aa3/AA-/NR) via its Hong Kong unit with a USD 5y benchmark bond with IPT at +95bps, whereas Beijing Capital Development (NR/NR/BBB-) could price USD 5y bonds at IPT at +260bps area. In the pipeline, Bank of East Asia (A3/A/NR) has mandated banks for a potential USD 10nc5 T2 bond with IPT at +285bps.

¨      SGD Credit Market: SG Sept IP surprises on the upside. The 2y SOR stayed unchanged at 1.33% while the 5y mildly rose 0.75bps to 1.67%. Papers such as B3T2 BNP and STANLN as well as LMRTSP and FCTSP appeared tighter. Cambridge Industrial Trust’s (Baa3/NR/NR) 3Q16 revenue fell by 2.9% to SGD27.6m, while net property income fell by a larger 8.3% as property expenses rose due to single to multi-tenancy lease conversions, with Cambridge Industrial bearing the expenses. Meanwhile, Singapore September Industrial Production surprised on the upside at 6.7%, higher than consensus estimates of 1.0%, continuing a mini-upward production cycle that began early this year.

¨      MYR Credit Market: Active secondary corporate space with MYR1.3bn exchanged hands against last week average’s MYR847m, concentrated on Cagamas 9/17-1/25 (-1.3 to +7.9bps at 3.25-3.579%), JEP 12/31 (-7.2bps at 4.989%) and Sime Darby Pc3/26 (flat at 4.876%). BNM announced that it would auction MYR2.0bn of 20y MGS 5/35 (Reopening) on 28-Oct. Over in the primary market, MRCB-Quill Real Estate Investment Trust (MQREIT)(NR) plans to issue a 20y MTN programme by end of this year earmarked for acquisitions and refinancing requirements. Moreover, Mudajaya Group (RAM: AA2) received BNM regulatory approval on its USD200m 10y EMTN, with proceeds earmarked for their new overseas investments in Indonesia.