UST Steepens; O&G Counters Cause More Waves

10 October 2016

Credit Markets Weekly

UST Steepens; O&G Counters Cause More Waves

                                                                      

APAC USD CREDIT MARKETS

¨      Quiet trading week amid Chinese golden week holiday. IG credit spreads closed 5bps WoW tighter at 188bps, speculative bond yields were unchanged at 6.34%, while Asian CDS’ settled at 115.8bps (+1.4bps WoW). The UST curve bear steepened during the week with the 2y increasing 7bps to 0.83% while the 10y rose 12bps WoW to 1.72% following the better-than-expected Manufacturing PMI and initial jobless claims numbers, although cushioned by the disappointing non-farm payrolls (Sep: 156k, Previous: 167k) and unemployment rate (Sep: 5.0%, Previous: 4.9%) print last Friday.

¨      Muted primary market activity with 3 deal priced. UPL Corp (Baa3/BBB-/BBB-) priced USD500m 5y bonds at T+200bps (IPT: +220bps), followed by Korea Housing Finance (Aa1/NR/NR) sold USD500m 5y covered bonds at 85bps (IPT: 100bps). ITC Properties (NR) priced USD200m 5y bonds at 5% (IPT: 5.125%).

SGD CREDIT MARKETS

¨      Lackluster primary space; O&G bonds bear more negative news. Primary prints were scant save for a SGD100m print by the supranational International Finance Corp (Aaa/AAA/NR) with a SGD100m 2y at 1.025%. YTD issuances stood at SGD16.8bn, or 12.1% lower if compared to a similar period last year. Attention was on banking papers like ANZ, WSTP and ABANVs while yielder names like OLAMSP and BTHSP traded wider. The O&G bond space saw little respite from the recent negative news emanating from this space, with Ezra’s 22% owned associate, Perisai Petroleum, a Malaysian O&G services company, technically defaulting on its sole outstanding SGD125m PPTMK 10/16 after bondholders rejected its restructuring proposal. Meanwhile, Ausgroup (NR) received approval from bondholders for its proposed two year bond extension on its sole outstanding AUSGSP 10/16. Trikomsel (NR), which defaulted in Oct-2015 and was the second SGD bond to default in the past 5 years, announced a preliminary restitution plan which included delaying of repayments by up to 12 years and exchanging of debt for equity.

¨      Investors await MAS monetary policy announcement on 14-Oct. There was a keen steepening in the SOR curve, with the 2y rising by 2.2bps to 1.42% while the 5y rose by a comparatively larger amount of 8.6bps to close at 1.80%. Looking ahead, investors will be eyeing the release of the Singapore Aug Retail Sales and the Singapore bi-annual monetary policy announcement (14-Oct) as well as the Sept Non-oil Domestic Exports (17-Oct).

MYR CREDIT MARKETS

¨      Edaran SWM (NR) issued MYR800m Sukuk. The sub-contractor for solid waste collections in Johor redeemed its previous MYR750m Sukuk and refinanced it with a new MYR800m Sukuk, separated over 21 tranches – MYR500m 1y-7y Floating Rate Notes at ECOF+1.5%; and MYR300m 8y-12y Fixed Rate Bond at 6.0% coupon.  Meanwhile, UMWH ’19-26 settled 7-11bps below coupon at 4.71-5.15% for its new MYR700m issuance. Trading volumes were 20% lower at MYR3.2bn last week. About a fifth of the activities tilted towards the infrastructure names with LDF3 ’28-‘39 generally closing firmer while PLUS ’21-’37 moved sideways. GG bonds moved mixed across the Khazanah (-33bps to +1bp), DanaInfra (-11bps to +7bps), Prasarana (-3bps to +8bps) and PASB spaces (-1bp to +1bp).

¨      Govvies fell on weaker MYR. Yields for benchmark MGS increased with the 3y climbing 4bps WoW to 2.88% and 10y rose 3bps WoW to 3.58% on a quiet trading week. MYR weakened 0.45% WoW to 4.157/USD following better-than-expected US jobless claims, though the greenback fell after disappointing employment numbers last Friday. During the week, the MYR3.5bn 3.5y New GII auction was priced at 3.226% with decent BTC of 2.07x. We expect 3 more auctions to be conducted (10y GII Reopening, 20y MGS Reopening and 7y GII Reopening) with expected size of MYR2-3bn each, before the MYR11bn GII maturing on the 15-Nov.

¨      Stable foreign reserves, tighter trade balance. Malaysia’s foreign reserves stayed flat at USD97.7bn as at 30-Sep, which is equivalent to 8.4 months of retained imports and 1.2 times of short-term external debt. Trade balance narrowed on monthly basis to MYR8.5bn in Aug-16 (last year: MYR10.16bn) as imports (+4.9% YoY) rose more than exports (+1.5% YoY). Total trade for the first eight month amounted to MYR948bn with China (15.7% of total trade), Singapore (12.7%), EU (10.1%), US (9.4%) and Japan (8.2%) as the top trading partners.