FW: Credit Market Watch: Summary for week ending 29-Sep

 

 

Credit Market Watch: Summary for week ending 29-Sep

·         MYR Credit:

Ø  MGS curve steepened along the 5y15y with the 5y yield down slightly while the 15y yield rose 4bps WoW as support from USDMYR dissipated on the back of firmer USD. Corporate bond yields moved more or less in line, with credit spreads +/-1bp WoW.

Ø  BNM net short forward positions eased further to USD15.7b in August from USD16.5b in July and a high of USD19.1b in April, adding resilience to the headline external reserve position which has increased to USD100.8b at mid-September on the back of a more balanced portfolio flows trend and continued support from trade flows amid healthy trade surplus.

Ø  Banking stats: In August, loan growth pace rose to 5.8% YoY (July: 5.6%) driven by the pickup in corporate loan growth to 6.8% (July: 6.3%) while household loan growth held steady at 5%. Annualized YTD loan growth was 3.5% and our banking analyst is still looking at 4.7% for the full year. Loan applications and approvals showed positive tract expanding by 4% and 14.8% respectively, albeit less impressive working capital data. Equally notable, deposits grew by a faster 5% pace compared to 4.3% in July. Asset quality continued to remain steady across asset classes with overall GIL ratio at 1.67% (July: 1.68%).

Ø  Rating changes: 1) UniTapah’s rating was raised from AA2 to AA1 by RAM as higher cash retention pushed up minimum FSCR level to above 1.80x under RAM’s stressed case which corresponds to the higher rating; 2) Premium Commerce’s AAA/AA2 ratings on MYR204m Class A Notes/ MYR4.5m Class B Notes issued in Dec 2016 (collectively 2016-A Notes) were placed on RAM’s Negative Watch on concerns of increased liquidity pressure. Securitized with HP loans from Tan Chong Motor’s subsidiaries, portfolio performance has been markedly different from historical pattern, namely considerably lower monthly prepayments and higher average monthly defaults; 3) Cendana Sejati’s MYR360m senior sukuk AA1 rating was also placed on Negative Watch by RAM, citing decreased cashflow buffers after 90% of the payroll-deducted consumer-financing portfolio, which serves as collateral to the senior sukuk, has been restructured to reduce monthly instalments and extend tenors. 

Ø  Relative value: Mydin 2020 and Ranhill Powertron II 2029, which are guaranteed by Danajamin and rated AAA (FG), last traded 41-49bps above our fitted AAA line mainly due to yield premiums for their FG status.

·         Asian Credit:

Ø  UST curve bear steepened along the 2y10y with yields up 5-8bps WoW. Since the US FOMC meeting which delivered a slightly hawkish tone, the 10y UST yield has risen ~10bps. Last Friday’s weak PCE core inflation print (actual 1.4% YoY vs Bloomberg consensus 1.5% YoY) didn’t seem to discourage yields from marching higher.

Ø  Asian credits experienced some selloffs in tandem with the UST moves. Spreads were a tad wider, with JACI composite +1bp, JACI IG +1bp and JACI HY +2bps WoW. In sovereign space, INDON yields were about 5-11bps higher, KOREA and MALAYS about 3-9bps higher while PHILIP about 3-8bps higher WoW.

Ø  New USD issues: 1) Postal Savings Bank sold USD7.25b PerpNC5 AT1 at 4.5% from 4.85% IPT. Allocations were banks 52%, corporates/others 19%, fund managers 17%, PB 8% and insurers 4%. 2) Yuzhou Properties sold USD300m PerpNC5 bonds at 5.375% from 5.75% IPT on >2.8x book cover (good at reoffer). Allocations were fund managers 55%, banks 23%, PB 14% and securities/others 8%. 3) CK Hutchison sold USD1b 3y/5.5y/10y bonds at +77.5bps/+92.5bps/+107.5bps. 4) Overseas Chinese Town sold USD800m PerpNC3 bonds at 4.3% from 4.75% IPT on ~4.1x book cover. Allocations were funds/insurers 50%, banks 45% and PB/corporates 5%.

Ø  Rating change: 1) CapitaLand Commercial Trust (CCT)’s rating was downgraded to Baa2 from A3 by Moody’s following the announcement of acquiring 100% stake in Asia Square tower 2 which is expected to worsen CCT’s credit profile. Some SGD1.1b of the SGD2.1b acquisition cost will be debt funded, thereby raising adjusted net debt/EBITDA to ~10x which is more in line with Baa2 rating. Such a leveraged position is not expected to improve in the near term as the agency expect continued funding requirement from the redevelopment of its Golden Shoe car park project. 2) Wanda Commercial Properties (HK) was downgraded to Ba3/BB- with negative outlooks by both Moody’s/S&P, citing among others higher risks in funding access and the agency’s concerns over repayment risks of offshore bank loans because of potential non-compliance of certain maintenance requirement amid weakened liquidity profile – most cash is onshore, cited Moody’s.

·         CDS: EM Asia 5y CDS spreads were mostly wider by 1-2bps WoW except for Thailand which was flat WoW.

 

Thank you.