FW: Credit Market Watch: Summary for week ending 1-Sep

 

Credit Market Watch: Summary for week ending 1-Sep

·         MYR Credit:

Ø  MGS yield curve shifted 1-3bps lower along the 5y30y WoW on sustained buying flows from offshore real money accounts. Corporate bonds also traded a tad firmer with yields lower by 1bp WoW and posted MYR1.3b traded volume in the holiday shortened week, with better interest in 5y-10y tenors.

Ø  Banking system: Deposits grew stronger in July by 4.3% YoY after a below 4% pace in almost two years. Loan growth meanwhile was moderate posting 5.6% YoY (June: 5.7%), comprising 5% (June: 5%) from household lending and 6.3% (June: 6.5%) from business lending. The banking industry continues to anticipate a pick-up of business lending in 2H17 but this still requires close monitoring as working capital applications contracted for a 13th consecutive month in July on a 3-month moving average basis.

Ø  Relative value: FRL 2021 appear to offer value over UMWH 2021 with the former last trading at 4.70% vs the latter at 4.67%. We prefer FRL’s credit as seasonally higher crop output in 2H coupled with yield recovery should offset downside risk in CPO prices, while auto sales recovery is likely to be gradual.

·         Asian Credit:

Ø  UST curve flattened a tad along the 2y10y since our last review with 2y yield up 1bp while 10y yield little changed WoW. Lingering concern over North Korea threat continues to dominate, thus keeping a lid on developed market yields but not to the extent that there is a panicky flight to safe-haven assets.

Ø  Asian credit was overall tighter in yields. In sovereign sector, yields traded mostly tighter, about 2-7bps lower across INDON, PHILIP and MALAYS WoW.

Ø  USD new issues: 1) China Great Wall sold USD500m 3y bonds at +135bps, USD1b 5y bonds at +145bps and 10y bonds at +180bps, with book cover of 4.6x, 3.6x and 4.8x respectively. Allocations were mostly to banks and fund managers. 2) Lotte Shopping sold USD300m 3y bonds at +105bps with ~5.7x book cover. Allocations were fund managers 60%, banks 32% and PB & others 8%.

Ø  Rating change: 1) Yuzhou Properties’ issuer/senior unsecured rating were raised by one notch to BB-/B+ by S&P, citing increased scale and diversity. 7M17 sales rose by 64% to RMB24.2b and its geographical concentration on Fujian has reduced to 37% (2016: 42%, 2015: 59%). Profitability was maintained, given its low landbank costs and agency expects debt/EBITDA to improve to slightly below 5.0x. 2) China Shenhua Energy’s rating was put on negative watch by S&P, citing the planned merger with China Guodian as approved by SASAC will increase leverage and negatively impact its credit profile. Moody’s, which already rates China Shenhua Energy one notch lower S&P, commented that the merger will not immediately affect rating, as weaker credit metrics will be offset by benefits from vertical integration and remain strategically important to the government.

·         CDS: EM Asia 5y CDS spreads tightened in most countries, with Indonesia -6bps, China, Malaysia and Philippines -4bps but Korea widened to 66bps as we write from ~60bps about a week ago.