GovCo Issued MYR3bn; HLFG Stays Resilient

22 February 2017

Credit Markets Update

GovCo Issued MYR3bn; HLFG Stays Resilient     

MYR Credit Market:

¨      Cautious mode in the govvies before FOMC minutes tomorrow as investors await further hints on the Fed rate hike trajectory, especially after a series of hawkish remarks from Yellen and other FOMC members. The MGS curve steepened yesterday with the 3y falling 4bps to 3.31%, while the 10y was unchanged at 4.02% as the MYR settled flattish at 4.457/USD.

¨      Corporate market closed firmer. Trading flows remained active with MYR771m changing hands. Yields for top traded bonds generally moved lower yesterday. Tightening seen GG bonds such as Khazanah ’20 (-3bps to 3.99%), Prasarana ’21-26 (-15bps to -26bps to 4.00-4.28%) and PTPTN ’24 (-10bps to 4.19%). PLUS ’19-27 fell 1-19bps to 3.98%-4.51%, while SEB ’24-27bps closing at 4.20%-4.51% (-2bps to -60bps). Gains also seen in financial papers with Bank Islam T2 25c20 (-6bps to 4.63%) and HLB T2 24c19 (-3bps to 4.55%).

¨      Over the primary market, GovCo (GG) issued MYR3bn IMTN, separated across four tranches 5-15y at 4.10%-4.95% (MGS+ 38-53bps).

¨      Hong Leong Financial Group’s (HLFG) net profit jumped 28% to MYR1.25bn in 1HFY6/17 on the back of improvement across all operating divisions and lower overhead expenses from one-off Mutual Separation Scheme last year, which reduced the cost-to-income ratio to 43.3%, from 52.6% a year ago. Asset quality remained resilient, although gross impaired loan increased slightly to 0.85% (FY16: 0.79%), with the increase mainly from its property lending and working capital loan extended to an O&G company. Loan Loss Coverage stayed sound at 107%. Capital position for key subsidiaries remained robust, with HLB Group’s CET 1 at 13.4%, Tier 1 at 13.8% and Total Capital Ratios at 15.3% as at Dec-16.

APAC USD Credit Market:

¨      Stable session for Asia credit markets. IG credit spreads and average speculative bond yields tightened approximately 1bp and 2bps respectively. CDS spreads compressed 2.1bps overnight to 99.7bps or its lowest levels since Mar-15, with continued CDS spread tightening recorded particularly in Asian banking names i.e. Woori Bank, China Development Bank and Bank of China.

¨      UST pushed higher following Philadelphia Fed President Harker’s hawkish comments in-spite of the weaker-than-expected US flash services and manufacturing PMI and mounting concerns surrounding the European elections intensified which led to some market participants turning to safe haven assets. New polls shows a widening lead for French presidential candidate Marine Le Pen, extending her lead against her rivals. Treasuries were also pushed down by better demand for the 2y auction. UST10y yields was 1bp higher at c.2.43%, while the 2y rose 2bp to c.1.20%. Brent, meanwhile, advanced +0.85% to USD56.7/bbl as OPEC Secretary General signalled that OPEC and other oil producer will remain resolute to clear the oil supply glut and targeting a higher compliance rate.

¨      Slew of new issuances hit APAC primaries. Hong Kong government (NR/NR/AA+) received USD1.7bn orders for its USD1bn 10y sukuk at T+68bps (IPT: +70 to 80bps). Korea Development Bank (Aa2/NR/AA-) sold USD1.5bn 3-part bond deal; i) USD500m 3y FRN priced at 3mL+45 (BTC: 2.2x); ii) USD500m 5y bond at T+82.5bps (BTC: 2.8X) and iii) USD500m 5y FRN at 3mL+70.5bps (BTC: 3.2x). CITIC Ltd (A3/A-/NR), meanwhile priced USD500m and USD750m bonds at T+120bps and T+142.5bps respectively. Elsewhere, Xinyuan Real Estate (NR/B-/B) sells USD300m 4y bonds at 7.95%, oversubscribed by 10.6x In the pipeline, China Aircraft Leasing (NR) plans fixed income meetings starting today, whereas UOB (expected issue rating: Aaa/AAA/NR) plans USD 3y covered bonds.

¨      On the economic data front, investors’ attention will shift to the US FOMC minutes due later tonight and Jan existing home sales print, expected to grow 1.1% MoM.