FW: RHB FIC Credit Markets Update - 20/9/17

 

20 September 2017

 

 

Credit Markets Update

                                               

MYR and MGS Weakens in-line with Global Yields; Focus on US FOMC

 

MYR Credit Market:

¨      MGS and MYR weakened. Benchmark MGS 3y and 10y continued to be pressured in-line with global yields and ahead of the US FOMC meeting, rising approximately 2bps to settle at 3.35% and 3.85%. The MYR, along with other EM Asian currencies fell despite the weakening of the US DXY. The MYR was marginally weaker by 0.05% to 4.1915/USD.

¨      Govvies trade was marginally higher ahead of the US Fed meeting. GII 11/17 was the top traded with MYR632m changing hands, followed by the MGS 3/18 and MGS 2/18 on MYR503m and MYR241m trades respectively. Meanwhile, the benchmark 3y MGS recorded MYR290m trades.

¨      Corporate trading saw decent volume. Transactions reached MYR569m surpassing yesterday’s MYR437m. Trading was mostly focused in the AA space and in multiple sectors. AA1-rated KLK 9/22 was the most actively traded with MYR80m adding 1bp to 4.40%. BGSM recorded MYR65m combined trades with 12/17, 12/18 and 12/22 tightening 4 to 6bps to 4.02%, 4.25% and 4.68% respectively. Yields of SEB 1/22 and 6/21 rose 1 to 2bps to 4.30% and 4.33% on MYR60m dealt. On the other hand, longer-dated LDF3 8/31 and 8/37 edged lower by 2 to 3bps to 5.00% and 5.30%.

¨      In the primaries, IGB REIT Capital Sdn Bhd (AAA - RAM) printed MYR1.2bn First Tranche MTN with a 7y maturity and is the first MTN issuance under IGB REIT Capital’s MYR5.0bn MTN Programme. Affin Bank Berhad issued MYR1bn 10nc5 A1-rated subordinated notes with coupon rate at 5.03%

APAC USD Credit Market:

¨      N Korea, Middle East and Venezuela ignored as market looks on to Fed. The speech by President Trump to the UN focused attention to possible action made by the country on both N Korea and Venezuela while in a separate speech the ruler of Qatar Sheikh Tamim requested the aid of UN to end the crisis between his country and the Saudi-led coalition. These factors seemed to have little effect as the markets seem to be more focused on the upcoming Fed FOMC meeting where the balance sheet unwinding, the latest forecasts of the members especially on interest rate and inflation, and forward guidance by the Fed will be weighed up. The 2y UST was hardly changed as yields gained +0.6bps to 1.40% while the 10y UST yields rose another +1.6bps to 2.25%. The USD too continued to see weakening ahead of the FOMC, as the DXY Index fell overnight to 91.793 (-0.28%).

¨      HY credit continues to underperform. The average Asian ex Japan IG spreads and the average yield on HY Asian ex Japan remained largely unchanged at 168.1np and 6.56% despite the strong rally in USTs the day before. The average IG Asia ex Japan CDS continues to hit new lows now at 71.88bps (-0.84bps). Hyundai Motor Co saw CDS levels spike +0.4bps as news of a possible merger with Fiat Chrysler Automobile (FCA) occurs. Continuing their rally after last week’s widening were SK Telecom Co, Kookmin Bank, and Export-Import Bank of Korea, which saw CDS levels fall -2.0 to -2.8bps. The sovereigns of South Korea and Malaysia continued their rally which started since last week by another -2.0 and -1.8bps respectively.

¨      Primaries saw Beijing Infrastructure Investment issue USD700m 3y bonds through a Keepwell Agreement via Eastern Creations II Investment Holdings Ltd (A2/NR/A+). The issuance was priced at T+125bps vs IPT of T+150bps, garnering strong BTC of 6x. SP PowerAssets (Aa2/AA/AA-) issued USD600m 10y bonds, priced at T+80bps vs the IPT of T+95bps. A new issuer, KazTransGas JSC (Baa3/BB/BBB-), on the other hand, printed USD750m 10y bonds at 4.375% vs IPT of 4.70%

¨      In ratings, S&P downgrades Panda Green Energy Group (PGE) Ltd to B+/Sta from BB-/Sta following its recent commitment to continue plans of its recent acquisition, China New Energy Holdings, to develop a large-scale greenfield hydropower project in Tibet. This new project is beyond the company’s expertise in solar power generation and poses execution and financial risks despite its shareholder support by, China Merchant Group, a government linked entity. S&P views the geological and grid connection complicate an already more complex and larger scale requirement in project financing compared to what PGE is familiar with. With a debt-to-EBITDA above 10x, there is little room for unexpected operational or capex requirement and the expected FFO cash interest cover is expected to fall below the 2.0x forecasted close to the 1.5x downgrade trigger. From a policy standpoint, delays in the feed-in-tariff (FIT) subsidies continue to pressure cash flows of solar operators and the new introduction of a green-certified trading program which may further impede revenue generation, a concern considering solar power generation will be the main contributor of EBITDA over the next five years.

 

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