Tower Bersama Slashed to BB- by Fitch; SG PMI Eyed

2 December 2016

Credit Markets Update

Tower Bersama Slashed to BB- by Fitch; SG PMI Eyed 

¨      APAC USD Credit Market: UST extend sell-off. Fresh from the OPEC deal, Brent crude price surged to USD53.9/bbl (+6.88%), pushing US Treasury yields higher across the curve (3-7bps) as inflation expectations rise. UST 10y settled at c.2.45% (+7bps) or its highest level since Jul-15 while the 2y settled at 1.15% (+3bps). Taking cues from the weaker USTs, Asian bonds widened amid the dampened sentiments as IG spreads and speculative bond yields added 1-6bps to 186.2bps and 6.80% respectively, in-spite of the improved Chinese Nov manufacturing PMI. Asian IG CDS edged lower to 125.2bps led by oil-related credits i.e. Reliance Industries, PETMK and GS Caltex. Turning to primary supply, Ronshine China Holdings Ltd (issue rating: B3/B-/B+), a Chinese property developer focusing in the Western Taiwan Straits Economic Zone and select tier-1 and tier-2 cities, priced USD175m 3Put2 Reg S bonds at 7.5% (IPT: high 7% area). On ratings, Fitch slashed Tower Bersama’s rating to BB-/sta from BB on the back of the weakness free cash flow generation from aggressive dividend policy, alongside capex requirements and higher financing costs, whereby Fitch expects its FFO-adjusted net leverage to be high at 5.8x over the next three years.

¨      SGD Credit Market: Investors eye SG PMI for any signs of sustained rebound. There was a steepening in the short-to-mid swap curve, with the 2y rising by 2.3bps to 1.61% while the 5y rose 5.1bps to 2.22%. Ezra Holdings (NR) announced that the put option that mandates the company to acquire a USD43m 51% stake in SJR Marine from now-defaulted Perisai Petroleum Teknologi Bhd is exercisable one month from 8-Dec-2016. This will weigh on Ezra’s tight credit profile, where it recently sought consent to waive all financial covenants on its outstanding issuances. Looking ahead, investors will be eyeing the Singapore Nov PMI (consensus: 50.0; Oct: 50.0) to be released tonight to see if there is a continued rebound in the PMI, which went through 14 consecutive months of contractionary expectations from Jul-2015 to Aug-2016.

¨      MYR Credit Market: Mixed flows in the govvies; MYR strengthened mildly. MGS ended mixed with the 3y settling 5bps higher at 3.90% and 10y was unchanged at 4.35%. The MYR closed slightly firmer at 4.4635/USD (-0.06%) amid better oil prices. Malaysia PMI declined for the second consecutive months to 47.1 for Nov, from 47.2 in the previous month. Overall, our economist expects the country’s economy to expand at a pace of 4.1% for 2016 and 4.0% for 2017, supported by the ongoing implementation of infrastructure projects and potentially pre-election spending. Corporate flows totaled at MYR576m. Several bonds readjusted higher after the spiked of the MGS yields since last month – Prasarana 3/19 increased 58bps to 4.197%, Rantau 5/31 added 50bps to 5.019% while Benih Restu 6/25 jumped 38bps to 4.859%.