FW: Credit Market Watch: Summary for week ending 15-Sep

 

Dear all,

 

Credit Market Watch: Summary for week ending 15-Sep

·         MYR Credit:

Ø  MGS yields rose 1-3bps along the 5y15y with some profit taking activities. Despite higher UST yields, MGS market remained fairly supported with USDMYR seen steady in the 4.18/20 region. Corporate bonds yields were generally little changed.

Ø  Prasarana raised MYR4b government-guaranteed bonds from multi-tranche sukuk with tenors of 5y, 7y, 8y, 20y, 25y and 30y. Selldown levels were attractive for longer end papers while the shorter end ones were fairly priced.

Ø  Affin Bank (AHBMK): Views on new subdebt. The bank raised MYR1b 10NC5 subdebts with ~1.8x book cover including the private placement portion. Final yield was done at 5.03%/MGS+146bps which is at the lowest end of 5.03-5.13% IPG. Relative to the secondary level of the existing AHBMK callable 02/27, we think the new AHBMK subdebt was priced about 5bps tight but still offers pickup over similarly A1-rated Bank Islam B3T2 callable 12/20 at MGS+131bps. Technical seems supportive, with a lack of supply for a reasonably good credit at 5-handle yield for a 5y tenor (albeit a NC5). On credit, we maintain a neutral outlook on the bank. 1H17 results were flattish with pretax income of MYR272m (1H16: MYR270m). Credit costs crept higher (MYR42m vs MYR1m in 1H16) but was negated by the increase in Islamic banking and non-interest incomes. GIL ratio deteriorated to 2.02% (2016: 1.60%), due to the rescheduling and restructuring (R&R) of some legacy commercial real estate loans, which the management expects to return to performing in 2H17 at the earliest. Loan growth YTD was 2% driven by mortgages and hire purchase loans. NIM held steady at 1.89% (2016: 1.87%) as the bank shed some expensive deposits but this resulted in LDR rising to 93.7%; notable was a pick-up in retail deposits. The previous subdebt issuance in February lifted total capital ratio to 17.4% end-June (2016: 15.8%).

Ø  Relative value: Berjaya Land’21, rated AAA (FG), last traded 53bps wide from our AAA fitted line because of yield premiums on its FG status.

·         Asian Credit:

Ø  UST curve rose 12-17bps along the 2y10y with the 10y yield up 15bps WoW back to the 2.20% mark. The flight-to-safety positioning appears to be “transitory” in the absence of further escalation of conflicts and market’s perceived risks on geopolitical tensions has receded. Risk appetite returned in equity markets as both S&P 500 and Dow Jones set record highs while Gold spot retreated and the Japanese Yen fell. Focus is being shifted back to the US FOMC monetary policy decision this Thursday morning (Asian hour). The US Fed is expected to announce the date of the beginning of balance sheet reduction and perhaps some adjustments to Fed dots.

Ø  Asian credit while yields rose because of the UST adjustments, spreads generally tightened with JACI composite -8bps WoW. Sovereign INDON and PHILIP were about 2-7bps higher in yields while KOREA and MALAYS underperformed with yields rising 10-15bps WoW.

Ø  Rating change: CIFI Holdings’ rating was raised to BB from BB- by Fitch, citing increase in scale while credit profile is maintained. Fitch expects its contracted sales to quadruple from 2014 to CNY45b in 2017, its net debt/adjusted inventory is lower than BB-rated peers and EBITDA margin remains healthy.

·         CDS: EM Asia 5y CDS spreads overall grinded tighter, with Indonesia -6bps, China and Malaysia -5bps each, Thailand -4bps, Philippines -3bps and Korea -2bps WoW.