Bank Pembangunan Priced MYR1.5bn IMTN

23 February 2017

Credit Markets Update

                                               

Bank Pembangunan Priced MYR1.5bn IMTN     

MYR Credit Market:

¨      MGS moved sideways before FOMC minutes overnight as the 3y fell 1bp to 3.30%, while 10y rose 2bps to 4.04% amid higher inflation in Jan-17. Malaysia’s headline inflation rate picked up to 3.2% YoY, exceeding consensus expectation of 2.7% on the back of higher fuel prices. Looking ahead, our economists expect inflation rate to increase to 3.0% in 2017, from 2.1% in 2016. The BNM is likely to maintain the OPR rate at 3.0% in 2017 as we believe the central bank could tolerate the cost-push inflationary pressure without having to tighten its monetary policy. On the other side, currency weakness would constraints BNM from further easing. The MYR closed the day at 4.454/USD yesterday, strengthened about 0.09% from the day earlier.

¨      GovCo gained on first trading day. Volume totalled MYR606m in the corporate market with 45% of the trades concentrating in the GG segment. Newly issued GovCo ’24-32 rallied as yields fell 5-10bps to 4.20-4.85% on combined MYR90m trades. Tightening was also recorded in other GG papers such as LPPSA ’26 (-14bps to 4.27%), PASB ’19-26 (-4bps to -5bps to 3.81%-4.29%) and Prasarana ’22-23 (-4bps to 4.02-4.06%). Elsewhere, Aman ’17-19 ended flat to -23bps to 3.70%-4.05%.

¨      Over the primary market, Bank Pembangunan (AAA) priced MYR1.5bn IMTN with the 5y at 4.28% (MGS+57bps), 10y at 4.62% (MGS+58bps) and 15y at 4.98% (MGS+52bps).

APAC USD Credit Market:

¨      Treasury yields were lower after the markets digested the Fed minutes as the weak tone from the FOMC minutes failed to reinforce the hawkish Fedspeak over the past few weeks which placed March as a “live” meeting. 10y yields UST dipped 2bps to 2.41%, whereas the 2y was a tad higher at c.1.22% (+0.9bp). The probability of a March rate hike stands at 34%, 61.8% in May and 76.1% in June. On the data front, Jan existing new home sales rose 3.3% MoM, higher than consensus of 1.1%.

¨      The iTraxx AxJ IG continued to trade tighter with spreads declining 2.8bps to 97bps. The outperformers were Hutchinson Whampoa (-7bps), IDBI Bank (-5.1bps), Reliance Industries (-5bps) and again, Bank of China (-4.7bps). On the other hand, Asia credit markets settled mix. IG credit spreads rose 1.2bps to 171.4bps, whereas the average HY bond yields continued to rally, narrowing -2bps to 6.52%.

¨      Ratings of Parkson Retail Group was slashed by Moody’s to B3 from B2; remained on negative outlook to reflect continued compression of Parkson’s profitability and cash flows and as a result, weaker financial profile. Intense competition from online retailers and challenges in the Chinese retail market space has seen Parkson’s debt/EBITDA surge to around 9x and a RCF/net debt of around 7-8% in 2016.

¨      Primaries remained highly active, Franshion Brilliant (Baa3/NR/BBB-), guaranteed by China Jinmao Holdings (Baa3/BBB-/BBB-) priced USD500m 5y bonds at T+170bps compared to IPT at T+200bps area. Xinhu Zhongbao (B3/B-/B), a Chinese property player, priced USD700m 3y bonds at 95.595 (final guidance: 6.25%), oversubscribed by 7.1x. UOB (issue rating: Aaa/AAA/NR) sold USD500m 3y covered bonds at MS+45bps compared to IPT MS+50bps.