Govvies ended mixed before key US data. Investors were generally cautious before key event risks from US NFP number this Friday and FOMC meeting next Wednesday after series of hawkish remarks from Yellen and Fed members. MGS 5y-15y curve flattened with the 5

8 March 2017

Credit Markets Update

                                               

Mix Rating Actions on Chinese Property Players

MYR Credit Market:

¨      Govvies ended mixed before key US data. Investors were generally cautious before key event risks from US NFP number this Friday and FOMC meeting next Wednesday after series of hawkish remarks from Yellen and Fed members. MGS 5y-15y curve flattened with the 5y rising 3bps to 3.82%, while the longer 10y declined 4bps to 4.09% and 15y fell 7bps to 4.49%. Meanwhile, investors are looking forward for the MYR4bn 5y New MGS 3/22 to be auctioned on the 9-Mar with the WIs saw good two-way interests at yields around 3.85%, according to our channel check. The MYR was unchanged yesterday at 4.448/USD.

¨      Active trading day with MYR1.1bn changing hands. Top traded was CIMB Bank T2 11/22c17 saw MYR300m crossed at 4.06% (9bps above the previous non-odd lot trades). Short-dated Cagamas ’17-‘18 generally ended firmer at 3.67-3.93% (unchanged to -11bps). Elsewhere, Putrajaya ’18-’19 moved -10bps to +12bps to 3.94-4.03%.

APAC USD Credit Market:

¨      The US market remained in flux despite it being quiet in the economic front – trade balance was in line with expectation (actual & consensus: -USD48.5bn). Markets continued to react to the twin effects of the speech of President Trump and hawkish statements of members of the Fed FOMC which saw UST yields widen across the curve amid the blackout period ahead of March FOMC meeting. There was a weak reception for the USD24bn 3y note auction as well, selling at a high yield of 1.63%. The 2y Treasury note picked up 2.2bps to 1.33% while the 10y bond widened to 2.52% (+1.8bps), above the 2.50% psychological level. DXY index was higher at 101.81 (+0.17%).

¨      The Asian credit market had a mixed session yesterday – iTraxx AxJ IG credit spreads tightened (-0.9bps to 94.5bps), whereas both the IG and HY space increased by 0.8bps and 2.0bps, to 172.0bps and 6.52% respectively. The lower iTraxx index was led lower by Bank of China Ltd, Hutchinson Whampoa Ltd and China Development Bank.

¨      In the primary market, Export-Import Bank of China (issue rating: Aa3/NR/NR) raised USD2bn by issuing 2-tranche bond – USD1.15bn 5y bond at T+85-90bp against its IPT at T+110bp area, USD850m 10y bond at T+110bp against its IPT at T+130bp area.

¨      Over to rating space, S&P and Moody’s made a series of rating changes on Chinese real estate developers (i.e. KWG Property Holding Ltd, Times Property Holdings Ltd and Yanlord Land Group Ltd). S&P placed KWG Property Holding Ltd’s BB- rating on watch negative to reflect KWG’s weaken financial performance as a result of aggressive land acquisitions. Its debt/EBITDA ratio is likely to deteriorate further, compared to the previous ratio of 5.0x-5.5x for the 12 months to June 30, 2016.  S&P also revised Yanlord Land Group Ltd’s outlook from stable to positive (affirming rating at BB-) to reflect strong financial leverage and robust sales performance. S&P forecasts that the company’s debt/EBITDA ratio will stabilize at 3.5x-4.0x in the next 12-24 months. Moody’s revised Times Property Holdings Ltd’s outlook from stable to positive as well, affirming rating at B1. This action is to reflect that the company will show an improvement in its credit profile, with the expectation that its EBIT interest coverage will improve to 3.0x-3.5x from 2.7x in 2016.

¨      Furthermore, S&P revised GS Caltex Corp’s outlook from stable to positive, affirming LT rating at BBB premised on expectation that the company will maintain a conservative financial policy and improve its credit quality. Debt/EBITDA ratio is expected to improve to around 1.2x-2.4x over the next 12-24 months. Elsewhere, Moody’s put JD.com Inc.’s LT rating on creditwatch positive (Baa3) to reflect that profitability and credit profile will improve in the near future as it disposed a loss-making subsidiary, JD Finance. After removing the negative EBITDA from JD Finance, the pro forma adjusted debt/EBITDA would be around 3x.

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