FW: RHB FIC Credit Markets Update - 6/9/17

 

6 September 2017

 

 

Credit Markets Update

                                               

USTs See a Strong Rally; Bahrain Mumtalakat Slashed to A3/Sta

MYR Credit Market:

¨         Resurgence in govvies trading levels. MGS yields continued to be pressured lower, tracking movements in global treasuries over the previous week. The 3y MGS and 10y fell -1 and -3bps, settling at 3.36% and 3.87% respectively. The 5y MGS, meanwhile, rose 2bps to 3.58%. The MYR strengthened 0.26% to 4.26/USD. Govvies trading surged to MYR4bn. Trades were largely concentrated in benchmark issues. The 10y MGS was the top traded with MYR385m changing hands, followed by 3y GII on MYR264m (flat at 3.49%) and the 7y MGS on MYR230m (tightening 1bp to 3.84%). MGS 9/18 also saw high volumes with MYR303m traded.

¨         Corporate bond trading stayed healthy at MYR536m. Newly-minted Danga Capital 9/27 led trades, ending unchanged at 4.52% on MYR160m trades, followed by YTL Power 5/27 with MYR100m changing hands (-0.8bps to 4.89%). Interest was also recorded in Danainfra 4/24 adding 1.5bps to 4.27% on MYR40m dealt.

¨         In the primaries, Danga Capital (AAA) issued MYR1.5bn sukuk from its MYR10bn Islamic securities programme, with maturity of 10y. Telekom Malaysia (AAA) printed MYR500m 10y sukuk from its MYR3bn IMTN programme while Sabah Development Bank (AA1) printed MYR155m 3y bonds from its MYR1bn MTN programme.

¨         RAM downgraded Bahrain Mumtalakat Holding Company (Mumtalakat) to A3/Sta from A1/Neg following the downgrade of Bahrain's sovereign rating to A3/Sta from A1/Neg as RAM views that Mumtalakat is an extension of the government, based on its critical linkage, strategic economic role and support for the company. The Bahrain sovereign rating was slashed due to its persistently weak fiscal position, further exacerbated by heightened external vulnerabilities given the limited oil price recovery and the government's elevated expenditure over the foreseeable future.

APAC USD Credit Market:

¨         Multiple shocks push yields lower. The risk off sentiment from increasing tensions surrounding N Korea continued to play out in the market, especially as US President Trump threatened widespread sanctions on Chinese companies for propping N Korea's economy. Gold prices reached its highest level for the year and the US equity markets faltered. The USD continued to weaken as the DXY Index ended at 92.64 (-0.19%). Concerns on the ability of the Fed to hike arose as Fed Governor Brainard spoke of cautiousness in response to the weak jobs and wage growth, seen by some as dovish. Investors are also in the process of pricing in another hurricane over the week over the state of Florida. The USTs saw a large rally with 2y USTs ending at 1.29% (-5.2bps) and the 10y USTs at 2.06% (-10.6bps). Risk positioning is expected to extend over the week, supporting bonds.

¨         Persistence of N Korea risk push CDS wider. The average Asian ex Japan IG spreads and the average yield on HY Asian ex Japan bonds were largely unchanged and ended at 174.5bps and 6.66% respectively. This occurs despite the strong rally in USTs of 5-10bps. The average IG Asia ex Japan CDS continued to rise to 77.86bps (+1.2bps). The widening was led by the Korean complex which saw the widening of CDS spreads +3.3bps to +5.3bps for Korea Development Bank, Export-Import Bank of Korea, Korea Electric Power Company, Hyundai Motor Company and Industrial Bank of Korea. In addition, Malaysian names Petroliam Nasional Bhd and Telekom Malaysia Bhd saw CDS rise +4.8bps respectively.

¨         China Minsheng Banking Corp (NR/BBB/BB+) via its HK branch issued two tranches of FRNs with maturities of 3y and 5y at 3mL+90bps and 3mL+100bps respectively. The tranches totalled USD450m and USD350m. Mitsubishi UFJ Lease & Finance Company Ltd (A3/A/NR), PT Steel Pipe Industry of Indonesia Tbk (B2/B/B) and Ayala Corporation (NR) are currently at investor meetings for possible new USD bond issuances.

¨         Over to ratings, Moody's upgrades Honghua Group Ltd to B3/Neg from Caa1/Neg. This follows its new shareholder China Aerospace Science and Industry Corporation (CASIC) (NR), with its appointment of board positions and new senior management, which is expected to provide management oversight and access to funding. The negative ratings is however maintained due to its weak revenue (-36.8% YoY 1H17) and expanding negative adj EBITDA. Due to its high fixed costs and its high operating expense/revenue ratio.

¨         Fitch has assigned a BB/Sta rating on Zhangrong Xinda Group Co Ltd. This coking company accounts for 20% of Shandong Province's total production, the largest logistics company in the province, sees strong financial flexibility as its inventories are readily marketable inventories allowing FFO adjusted net leverage at 5.1x and strong capital discipline, with promises to limit future capex to annual earnings. The leverage does remain high and the company does however have a large CNY5.6bn off-balance sheet debt guaranteed by it and does suffer from concentration risk to Shandong Province.