FW: Credit Market Watch: Summary for week ending 10-Nov

 

 

Credit Market Watch: Summary for week ending 10-Nov

·         MYR Credit:

Ø  MGS yields along the 5y15y climbed 4-9bps WoW as the hawkish shift in BNM’s MPC statement drove a selloff in government bonds. The Ringgit, on the other hand, was boosted by the prospect of rate hike with USDMYR pair falling to sub-4.20 level. In corporate bonds, quasi to AA1/AA+ yields shifted 1-4bps higher WoW amid light trading as market became cautious (MYR1.6b volume vs MYR1.8b previous week).

Ø  Monetary Policy: BNM delivered a hawkish shift in the monetary policy statement (MPS) which came earlier than expected but is in line with our view of one 25bps hike in 2018. Our economic research maintains that OPR hike will be a post-election event and as such, is eyeing May 2018 as the earliest possible timing for a hike. We keep our mildly bearish outlook on MGS, but further selloffs in the already underperformed ultra-longs may open up buying opportunities.

Ø  Danainfra: Raised MYR3b from multi-tranche GG bonds with tenor from 7y to 30y. Pricing, especially the ultra-long tenor, was done near the higher end of Danainfra’s primary levels in the past few years which reflects cautious market tone and pressure on the MGS curve.

Ø  Media: RAM downgraded all 3 media companies it rates: 1) MCIL from AA1/negative to AA2/negative; 2) Media Prima from AA1/negative to AA3/negative; and 3) STAR from AA1/negative to AA2/negative. The agency cited ongoing structural industry changes and weakened operating performances following an accelerated decline in adex as key reasons for the rating actions, while weaker balance sheet and poor TV segment showing are additional reasons for Media Prima’s steeper 2-notch decline. The negative outlooks reflect RAM’s concerns of continuing rapid decline in adex going forward that will pressure the media companies’ credit profiles further.

Ø  Relative value: For credits which offer yield pick-up over their respective fitted lines, we continue to like Genting (20-32bps wide), Quantum Solar Park (35-40bps wide) and Tadau Energy (40+bps wide).

·         Asian Credit:

Ø  UST curve bear-steepened with the 10y UST yield up 7bps WoW amid selloffs in the European sovereign bonds with both Gilt and Bund curves higher and steeper.

Ø  Asian credits spreads traded wider for the second week with JACI composite +4bps, JACI IG +3bps and JACI HY +4bps WoW. The composite spread has a widening bias totalling ~10bps since bouncing off from nearing the YTD low in late-October. Sovereigns tracked the UST weakness, with CHINA, INDON, MALAYS and PHILIP curves overall about 5-15bpbs higher, while the KOREA curve fared better rising 3-5bps WoW.

Ø  Rating change: 1) Parkson Retail Group’s rating was downgraded by Fitch to CCC from B- on concern over refinancing risks of its USD500m debt due on 3 May 2018. S&P and Moody’s still keep the rating at B3/B-, the former with a negative outlook. Competition, such as e-commerce, continues to weigh on its results with declining sales and lower EBITDA margin. Leverage remains high because of lower EBITDA generation. Rating trend of Parkson Retail has been on the decline, for example by Fitch, from BBB- in 2013, BB- in 2014, B+ in 2015, B in 2016 and CCC thus far in 2017. 2) China Evergrande’s senior unsecured rating was upgraded by Moody’s to B2 from B3, on expectation of lower debt leverage, healthy revenue growth and improved margins. Revenue/adjusted debts is projected to rise to 55-65% in the next 12-18 months from 41% at end-June 2017, stable revenue growth at ~10% and better gross margin at 35.8% in 1H17 (1H16: 28.3%). Liquidity position will increase following the RMB60b receipt from the sale of its subsidiary, with cash/short-term debt cover expected to rise >1.0-1.2x over the next 12-18 months from 0.9x at end-Jun 2017. 

·         CDS: EM Asia 5y CDS spreads widened across the countries, led by Indonesia +10bps, followed by China +9bps, Malaysia and Philippines +6bps each, Korea +4bps while Thailand +3bps WoW.

 

 

 

 

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