FW: RHB FIC Credit Markets Update - 30/8/17

 

30 August 2017

 

 

Credit Markets Update

                                               

GII 7y Reopening Gets BTC of 2.1x; Moody's Downgrades IDBI Bank

MYR Credit Market:

¨         Rally in MGS and MYR. EM Asian equities market underperformed mainly driven by the geopolitical tensions emanating from the Korean Peninsula after North Korea fired a missile over Japan as a flight to safety was seen across Asia. MGS 10y tightened 1.4bp to 3.90%, while the 3y stayed at 3.36%. The MYR over-performed the rest of EM Asia to settle marginally higher against the greenback at 4.2715/USD (+0.02%).

¨         Govvie trading stayed active amid the shortened trading week with MYR5.2bn changing hands. GII were actively traded representing more than half of govvie trades (52%) as most trades we concentrated at the mid-to-longer end of the curve (7-10y). The newly printed 7y GII led trades at MYR853m, settling at 3.98%, followed by the benchmark GII 10y and MGS 10y which recorded MYR820m and MYR720m trades respectively.

¨         Corporate trading slowed to MYR360m. Danainfra complex led trades on combined MYR110m with yields of tranches 5/24, 7/24 and 4/24 rising between 2.9 and 11bps. YTL Power 6/22 and 5/27 on combined MYR55m trades tightened 0.1-2bps to 4.48% and 4.90% respectively. Interest was also recorded in Johor Corp 6/22 on MYR30m dealt, trading 3bps tighter at 4.08%.

¨         In the primaries, the reopening of the 7y GII 08/24 closed yesterday at an average yield of 3.975%. The issuance size was MYR3.5bn with a further MYR500m privately placed, garnering a BTC of 2.1x. This was a weaker demand compared to a similar auction in May which saw BTC of 2.5x.

APAC USD Credit Market:

¨         Safe haven buying saw yields rally. Market participants took stock of the North Korea aggressive actions, and the reactions of Japan and South Korea yesterday, which saw push into safe haven assets and a risk-off to continue. The USD picked up from its lows but the DXY Index remained largely unchanged to end at 92.25. The USTs continued to rally with 2y USTs ending at 1.32% (-1.0bps) and the 10y USTs at 2.13% (-2.8bps). There has been a pause in the risk-off positioning at the end of the US trading session, expected to spill into the trades later today, as market participants halt pricing in further degradation of the current situation with North Korea.

¨         Asian CDS widen especially led by South Korea. The average Asian ex Japan IG spreads and the average yield on HY Asian ex Japan bonds moved in different directions with the IG spread widening +4.5bps and the HY yields tightening -1.0bps respectively to 174.5bps and 6.66%. The average IG Asia ex Japan CDS pared back the previous day's gains to 79.6bps (+2.3bps). The widening was led by PCCW-HKT Telephone Ltd (+7.0bps), GS Caltex Corp (+5.9bps), SK Telecom Co Ltd (+5.2bps) and POSCO (+5.0bps). The CDS of South Korea also picked up +4.9bps as hedging was active following the escalation of geopolitical strain with North Korea continues to drag assets.

¨         DBS Bank Ltd (Aa3/AA-/AA-) issued USD50m 20y callable range accrual notes, callable at 1y. Coupon payments are linked to the 10y constant maturity swap and the spread between the 30y and 5y swap rates, capped at 4.50% a year. Fitch accorded this issuance a AA-(emr) to preclude the embedded market risk associated with the coupons. Sun Hung Kai & Co (BVI) Ltd (NR) is currently running a roadshow in the week for possible new USD bond issuances.

¨         Over to ratings, S&P upgrades Yuzhou Properties to BB-/Sta from B+/Sta. This follows the diversification of Yuzhou from its concentration in Fujian (now accounts for only 37% of earnings) and sales expansion expected to RMB37bn from RMB23bn in 2016. S&P raises MIE Holdings Corp rating from D to CCC-/Neg. This follows the completion of an exchange offer to holders of the 2018 and 2019 bonds. The repayment risk for the outstanding debt still remains a concern especially in the upcoming 12 months. Moody's downgrades IDBI Bank rating to B1/Sta from Ba2. This follows a review for downgrade initiated in May. Despite receiving INR18.6bn and INR3.9bn of equity injection from the government and Life Insurance Corporation of India (LIC), the CET1 ratio of 6.5% remains below 7.375% required by RBI for 2018. With loss expected reported for 2017 and asset quality issues persisting, Moody's sees limited room for further government support despite it being systemically important.