FW: RHB FIC Credit Markets Update - 7/9/17

 

 

7 September 2017

 

 

Credit Markets Update

                                               

Focus on BNM; July Exports Surge 30.9% YoY; FX Reserves Rose

MYR Credit Market:

¨         MYR and MGS extends rally. MYR strengthened +0.50% to 4.2387/USD as the USD continued to be pressured by geopolitical tension in North Korea, dovish Fedspeaks and the aftershock of Hurricane Harvey, while Hurricane Irma looms. Improving Brent oil prices to USD54.2/bbl (+1.54% overnight) also supported the MYR. MGS extends rally, with both the 3y and 10y MGS edging lower by 1bp to 3.35% and 3.86% respectively.

¨         Strong trading in both govvies and corporate bond market. The govvies trades remained elevated close to MYR5bn. Top traded was the benchmark 7y GII on MYR695m trades, while the benchmark 10y MGS and 10y GII saw trades of MYR305m and MYR290m respectively. Trading in corporate bonds jumped to MYR767m changing hands (prior: MYR536m). Major trades were MYR70m of Danga 9/27 (tightening -3bps to 4.49%), combined MYR65m of LPPSA complex (yields moving between +0.6bp to -2.8bps) and SEB 1/22 on MYR60m dealt (compressing -4.4bps to 4.33%).

¨         In the primaries, Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA) printed MYR3.5bn bonds across 5 tranches with maturities ranging between 3-30y from its guaranteed MYR25bn ICP/IMTN programme. On corporate news, RAM highlighted that Genting Plantation's (GENP) proposed acquisition of approximately 14,661ha of plantation land in Indonesia (through 100% acquisition of Knowledge One Investment Pte Ltd (KOI)) could weigh down in its financial profile in the near term. Plans to fund the acquisition through external borrowings (acquiring for USD94.97m), and assume KOI's debt obligation will drive GENP's D/E and net D/E to 0.69x and 0.26x (end Jun-17: 0.54x and 0.11x). Furthermore, the FFO/debt ratio is anticipated to deteriorate to 0.16x. The acquisition is however beneficial to GENP operationally as it will expand its existing landbank by 6% to 242,597ha.

¨         BNM reported that forex reserves stood at USD100.5bn as at end-Aug, growing USD100m from the mid-July. Reserves were sufficient to finance 7.8 months of retained imports and 1.1x of short term external debt. July exports grew 30.9% YoY from the 10% recorded in June on back of base effects and the distortive festive period. Imports rose sharply to 21.8% YoY during the same period from 3.7% previously. Our economics team expects exports and imports to pick up to 15.2% and 18.6% in 2017 respectively, from 1.1% and 1.19% in 2016. Later today, investors will eye BNM's upcoming MPC meeting where the OPR rate is expected to be left unchanged.

APAC USD Credit Market:

¨         USTs retrace as policy standstill averted. Tensions surrounding N Korea continued to boil over as uncertainty continued to keep markets lacklustre, further exacerbated by the surprised announced exit of Fed Vice Chair Fischer in October and further news appears on Hurricane Irma. The markets ended on a more upbeat mode after the US President Trump reached an agreement with the Democrats in the Senate to attach a short-term extension to the debt ceiling and government funding measures for another three months, leading to a rally in the equities market, and causing the UST to retrace from its strongest for the year. The 2y USTs saw yields rise +1.2bps to 1.30% whereas the 10y USTs rise 4.5bps to 2.11%. The USD was largely unchanged as the DXY Index ended at 92.29 (+0.04%).  The market will now be focused on the upcoming ECB meeting later today and further information of plans in relation to the asset purchase program (APP).

¨         Asian credit spreads moved in separate directions. The average Asian ex Japan IG spreads and the average yield on HY Asian ex Japan bonds moved in separate directions, the former widening +1.8bps while the latter tightened -2.0bps to end at 174.8bps and 6.57% respectively following the strong rally in the USTs at the beginning of Asian trading. The average IG Asia ex Japan CDS continued to rise to 78.80bps (+0.9bps). The widening was led by the Korean names as CDS spreads rose +4.5bps to +11.7bps for Korea Development Bank, Industrial Bank of Korea, South Korea sovereign, Kookmin Bank, Woori Bank, Hyundai Motor Company, and POSCO. HK names including Swire Pacific and PCCW-HKT Telephone Company also saw CDS spreads widen 5.6-5.9bps.

¨         Lai Sun Development Co (NR) via LSD Bonds 2017 Ltd and Ayala Corp (NR) via AYC Finance printed 5y and perpetual non-callable 5y bonds of USD400m respectively. In addition to this, Woodside Finance Ltd (Baa1/BBB+) issued USD800m 10.5y bonds guaranteed by Woodside Petroleum Ltd (Baa1/BBB+/BBB+) and Woodside Energy Ltd (NR) while China Aoyuan Property Group Ltd (B2/B+/BB-) issued USD250m 5nc3 bonds. Hutchison Port Holdings (NR) came to market once more since 2015, to tap the market for USD500m bonds maturing in 2022, ahead of the USD500m maturity in 1Q18. Sinopec (A1/AA/NR) came back to the market since April to issue bonds in four tranches of USD700m, USD1.4bn, USD750m and USD400m, with maturities of 3y, 5y, 10y and 30y.

¨         On ratings, S&P upgrades Anhui Conch Cement to A/Sta from A-/Sta. This is based on the expectations that the company will continue to lower its financial leverage over the next 12-24months with improved operating efficiency and discipline in investment and expansion following its capex rationalization efforts seen in 2016. The expected stabilization of cement prices on the back rising demand is expected to moderate the impact of rising raw materials.  With high unrestricted cash holdings of close to CNY20.5bn in Jun-17, the company is expected to improve its financial leverage and should have no concerns in addressing its short term debt of CNY8bn, capex requirements of CNY7bn and dividend payout of up to CNY3bn over the next 12 months.

¨         S&P has revised its outlook on China Jinmao Holdings Group to BBB-/Sta from BBB-/Neg. This revision is based on S&P's revised expectations on its business expansion as it sees better business diversity in the company compared to peers and stronger parental support from its parent, Sinochem Group. This is expected to support the primary land development business which should contribute 10-15% of contracted sales over the next 24 months. In addition to that, closer operational ties with Sinochem Group has afforded Jinmao Group with increased financial flexibility, acquiring lands from Jinmao while offering call options and allowing to utilise part of its offshore bonds allocation from the National Development and Reform Commission. S&P further does not show concern for the growth in debt-to-EBITDA to 5.8x from 5.6x the year before as strong revenue bookings are expected to materialise revenue expectations and stabilise leverage.