Credit Market Watch: Summary for week ending 6-Jan

Credit Market Watch: Summary for week ending 6-Jan

·         MYR Credit:

Ø  MGS market was mostly interested in short-end bonds pushing the 3y yield down 11bps WoW, while other parts of the curve was little changed WoW. Corporate bond space saw a pick-up in activity with MYR3.1b of traded volume for the week. Corporate yields were tighter in general with better bids.

Ø  Bright Focus: RAM affirmed the AA2 rating and kept a negative outlook premised on lingering worries over possible unforeseen cash flow movements between the company, Maju Expressway Sdn Bhd (subsidiary) and Maju Holdings Sdn Bhd (parent) which had happened in 2015 and a surprise increase in operating costs in 9M16. RAM continues to monitor the cash movements every month. While better traffic showing at the new Seri Kembangan Link and Putrajaya toll strengthens cash flow, rising operating costs weighs on it and the agency now projects a lower bottom FSCR of 1.98x in Jan 2018 compared to 2.17x previously, but is expected to be maintained above 2.25x from 2023. The outlook can revert to stable if the company is able to exhibit financial discipline consistently and rein in operating costs.

Ø  Relative value: The short Bumitama’19 offers value as it last traded at 4.78%, which is 13bps above our fitted AA3/AA- line. We think the credit will remain steady supported by still strong CPO price and yield recovery.

·         Asian Credit:

Ø  UST curve was sold off higher on Friday, giving up earlier strength but the 10y yield still ended the week 3bps lower at 2.42%. Bearish tone set in as market viewed the 2.9% YoY wage increase in December a sign of tightening labour market condition which warrant additional FFR hikes by US Fed despite a lower increase in payrolls (156k vs 175k consensus and 178k prior month’s gain). According to Bloomberg news, several of the potential candidates for new Fed Chair in 2018, i.e. Glenn Hubbard, John Taylor and Kevin Warsh, said that the Fed is a little behind the curve in raising interest rates.

Ø  Asian credit spreads tightened, with JACI composite -4bps, JACI IG -4bps and JACI HY -7bps WoW. Sovereigns were the outperformers as INDONs and PHILIPs tightened in yields by approximately 15-25bps, while KOREA and MALAYS were about 10-15bps lower in yields WoW.

Ø  Rating changes: 1) Dalian Wanda Commercial Properties (DWCP, Baa2) and Wanda Commercial (Baa3, a wholly owned sub of DWCP) as well as its senior unsecured bonds were put on review for downgrade by Moody’s, following S&P’s downgrade last month, citing expectation of weakening of credit metrics amid increased debt from retail malls development, lower property sales and exposure to lower tier cities a risk. 2) China Mengniu Dairy’s rating was put on negative watch by S&P as the planned purchase of CMD shares is expected to worsen its credit metrics and could result in the consolidation of debt-heavy CMD, thereby increasing the combined entities’ debt/EBITDA to 1.5x-2.0x, breaching the 1.5x trigger.

·         CDS: EM Asia 5y CDS spreads tightened in tandem with stronger regional currencies against the USD. Indonesia, Malaysia and Philippines narrowed -8bps each, followed by Thailand -5bps, and China -4bps WoW.