9 June 2017
Credit Markets Update
UK Elections and North Korea Missiles Weigh on Risk
Assets
MYR Credit Market:
¨ Markets
weaken on worries arising from US and the UK. Markets started to weaken and
is expected to further weaken for both the MGS and the MYR, though trading
activity remained healthy. The MYR closed slightly weaker at 4.2682/USD losing
-0.3%. The MGS curve weakened where 3y MGS closed at 3.30% (+2.7bps) while the
10y MGS closed at 3.86% (-0.6bps).
As the newsflow comes in from Europe and the US, concerns of the ECBs
uncertainty surrounding its stimulus, the risk of a hung parliament in the UK,
the testimony of former FBI Director Comey and yet another bout of missile
testing by North Korea will have a short term negative implications on risk
assets and EM Asia.
¨ Trading
picks up for govvies and corporates. Trading in of Malaysian govvies was
weaker at close to MYR6.1bn worth of
trades. Trading in the corporate space remained strong as trades amounted
MYR524m.
¨ RAM
and MARC assigned preliminary AA3/Sta and AA-/Sta respectively to solar power
producers Tadau Energy’s proposed MYR250m sukuk and Quantum Solar Park (QSP
Semenanjung)’s proposed MYR1.0bn sukuk. Tadau has two 21-year PPAs with SESB, to construct, own, operate and
maintain solar photovoltaic plants with total capacities of 50Mwac in Kudat,
Sabah scheduled for commercial operation 30 June 2017 and 31 March 2018. This
project will have a fixed EPC contract with SPIC Energy Malaysia Sdn Bhd whose
group has a track record of constructing and commissioning solar plants in
China. QSP (Semenanjung) plans to issue a Green Sustainable and Responsible
Investment (Green SRI) sukuk, with a 21-year PPA, plans to construct three 50MW
solar photovoltaic plants in Gurun, Kedah, Machang, Terengganu and Jasin,
Melaka. Scheduled for operation on December 31 2017. This project will have a
fixed EPC contract with Scatec Solar Solutions Malaysia Sdn Bhd, whose parent
is an established Norwegian-based solar power plant developer and operator.
APAC USD Credit Market:
¨ Treasuries
yields inched higher. The lack of additional information from the testimony
of former FBI Director James Comey drove yields higher. UST2y and 10y rose
1-2bp higher to 1.31% and 2.19% respectively. The ECB’s inaction was largely
expected by investors though the ECB raised Eurozone’s growth forecast to 1.9%
in 2017 from March’s forecast of 1.8%, while reducing the inflation forecast to
1.5% (1.7% previously). In the UK, polls suggest that PM Theresa May’s
conservative party is at risk of clinching a clear majority in the Parliament,
a disappointing result which could further complicate Brexit talks.
¨ Asian
credit markets ended mixed amid the quiet market session, IG credit spreads
narrowed 1.9bps to 175bp, while average HY yields rose 2bps to 6.55%. The
iTraxx AxJ was a tad lower at 87.1bp, while most constituent members stable
mostly stable. The 10th missile test by
North Korea for the year could potentially reverse the rally in EM assets.
¨ In
the primaries, we observed two perp deals prices. Hong Kong based insurer, FWD
Ltd (NR) sold USD500 Pnc5 bonds prices at 6.625% compared to IPT at 7%
area; BTC 2.0x. HK based FI, AMTD Group Company Ltd (NR) tapped the
markets with USD200m Pnc3 bonds at 7.625%, priced 10bps inside IPT. In the
pipeline, Hilong Holdings Ltd (B1/NR/BB-) plans investor meetings
later today in Asia and Europe for USD bond.
¨ On
the ratings front, Hilong Holdings Limited was assigned by Moody’s at B1 to
reflect its strong market position in its ability to produce a wide range of
drill pipes for conventional and unconventional oil reservoirs, and oil country
tubular goods coating material. Moody’s expects the group’s debt/EBTIDA and
EBITDA interest cover to both hover around 3.5-4.0x over the next 12-18 months.
Elsewhere, Pakuwon Jati Tbk received positive outlook from Fitch from
stable; affirmed at BB-. Premised on its strong investment property
portfolio, mainly driven by mall operations, generating approximately 75% of
its total revenue in 2016. Fitch expects Pakuwon’s recurring EBITDA/net invest
cover ration to remain above 2.5x
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