FW: RHB FIC Credit Market Updates 231117

 

 

23 November 2017

 

Credit Markets Update

           

15y MGS 04/33 garnered strong 3.81x BTC, FX reserves holding up well at USD101.5bn

 MYR Credit Market:

¨      15-year MGS 04/33 tender garnered strong 3.81x BTC; strong demand prompt MGS/GII yields to ease lower. The MYR continued to surge higher against the greenback to reach a 14-month high at 4.1112/USD (+0.7%). The 3y-10y MGS rallied especially on the short end on heavy trading activities in the bonds market. The MGS 3y yields edged down -10.5bps to 3.37%. Meanwhile, the 7y and 10y MGS curves saw yields ease lower by -7.5 bps and -2.2 bps respectively, with levels ending at 3.89% and 3.94%. We opine the wide spread between 15-year MGS 04/33 and benchmark MGS 11/27 of circa 60 bps previously attracted value hunting, anchoring demand for yesterday's bond tender.

¨      Active govvies trading activities as volume surged higher to MYR6.5bn. Trades were mostly focused on the reopening 15y MGS 04/33 which gained substantial demand among investors as trade volume exceeded MYR1bn while yields tightened -4.9bps to 4.47%. Benchmark securities trading interests picked up strongly with 7y MGS 09/24 recording MYR598m to close -7.5bps lower at 3.89%. Moreover, shorter-tenured benchmarks 3y MGS 02/21 and 5y MGS 03/22 saw trades of MYR304m and MYR277m rallying -10.5bps and -8.8bps respectively to settle at 3.37% and 3.64%. Meanwhile, the benchmark 10y GII 07/27 saw MYR230m traded as yield moved down -4.5bps to 4.26%.Other notable trades include off-benchmarks MGS 09/21 and MGS 09/22 which saw MYR413m and MYR262m change hands to end the day at 3.65% (-8.5bps) and 3.82% (-3.2bps).

¨      Secondary flows in the corporate space improved relatively well as trades increased to MYR451m. Trades were mostly focused on short-tenured securities which accounted for 69% of the total trades. Financial names saw strong trades, with the short dated SABAHDEV 07/19 and SDBB 07/18 trading for the first time since being issued at 4.75% and 4.43%, accounting for MYR90m of trades each. HLFG 11/18 and the recently printed subdebt Bank Islam callable 11/22 saw trades of MYR20m and MYR30m respectively at 4.28% (-0.8bps) and 5.03% (-0.8bps).TENAGA 8/37 recorded trades amounting MYR50m with yields unchanged at 5.17%. MMC CORP 11/20, 4/20 and 4/27 recorded combined transactions of MYR45m settling at 4.91% (+0.1bp), 5.33% (-0.6bps) and 5.36%(-0.6bps).

¨      Over in economic news, Malaysia's foreign reserves for the period of 15-Nov17 remained unchanged from the 31-Oct17 period, at USD101.5bn. This is sufficient in financing 7.5 months of retained imports and is 1.1x short-term external debts. Focus is also on CPI data for the month of Oct-17 to be released tomorrow of which inflation is forecasted to moderate from the 4.3% recorded in September (consensus: 4.1%).

¨      In the primaries, as expected, the smaller MYR2bn saw the MGS 04/33 reopening auction well bided, garnering high BTC of 3.81x with an average yield of 4.55% compared to a similar auction in Apr-17 which drew BTC of 2.06x. It ended the day at 4.47%. YTL Reit MTN Sdn Bhd tapped the market for MYR265m from its MYR1.65bn unrated YTLREIT MTN programme with a coupon rate of 4.95%, 131bps over the closing of the benchmark 5y MGS. Meanwhile, Gamuda Berhad printed MYR500m under its AA3-rated MYR5bn IMTN programmes with a coupon rate of 4.83%, 119bps over the corresponding benchmark MGS.

¨      Over to ratings, RAM has reaffirmed Impian Ekspresi Sdn Bhd's 10y programme guaranteed by Danajamin Nasional Berhad and 7y programme guaranteed by Malayan Banking Berhad, at AAA/Sta. The enhanced ratings reflect irrevocable and unconditional guarantees from AAA-rated Danajamin Nasional Berhad and Malayan Banking Berhad Excluding the guarantees. The only project by Impian Ekspresi, Pavillion Damansara Heights is currently experiencing positive response with currently a 50% take-up rate for the 6 office towers to be sold. Given the company's high gearing ratio of 1.67x recorded as at end-Jun17, the project's time of completion would be critical as it may affect the company's debt repayment ability. The company's financial leverage remains a concern as RAM expects it to remain sustained for another year before paring down its debts with the sales proceeds.

APAC USD Credit Market:

¨      Fed minutes dampen sentiment. Risk rallies continued albeit in a more subdued pace. The Fed's FOMC November policy meeting minutes reaffirmed market participant's expectations of a rate hike in the Dec meeting, but also revealed that many participants in the FOMC observed that the persistently low inflation figures could signal more stubborn influences on weak inflation. This following a recent speech by Fed Chair Yellen that expressed her uncertainty on inflationary pressures in a transitory period of inflation below the US Fed targets. As investors reevaluated future rate hikes in 2018 and 2019, the yield curve bull steepened, as the 2y and 10y USTs rallied -4.5bps and -3.7bps respectively to 1.73% and 2.32%. The 30y USTs continued to edge down to 2.74% (-1.9bps). The USD as seen by the DXY Index was unchanged at 93.24 (+0.02%). Market is expected to remain largely subdued as the market slows down before the Thanksgiving break.

¨      State Bank of India leads the widening in the IG Asia CDS space. The Asia ex Japan IG credit spreads was a wider at 159.5% (+0.8bps) while the Asia ex Japan HY bond yields remained unchanged at 6.71%. The iTraxx AxJ continued its tightening as it rallied further to 77.2bps (-1.1bps). Leading the tightening of the CDS levels were State Bank of India/London, Kookmin Bank, Industrial & Commercial Bank of China and Bank of China Ltd, which saw rallies of -1.5bps to -2.08bps. On the other hand, Petronas Berhad and Hutchinson Whampoa Ltd CDS levels widen slightly +0.34bps and +0.26bps respectively.

¨      S&P lifted the Creditwatch negative on China Hongqiao Group Ltd (Hongqiao) affirming it at B-/Sta. This change in outlook occurred after Hongqiao published its 2016 annual report and financial statements with an unqualified auditor's opinion while publishing a report refuting alleged accounting irregularities by a short-selling firm Emerson Analytics Co Ltd. In addition, the company's total credit facilities increased to RMB49.6bn Jun-17 from RMB19bn in 2016, which is expected to restore investor confidence in Hongiqao. S&P also opines that the Chinese aluminium industry will see more favourable market conditions, with the strict enforcement of supply-side reforms by the government, and expects Hongqiao to maintain its large operational scale and cost advantage in the aluminium industry. With a higher operating cash flow and lowered capex plans, the company is expected to lower its leverage.

¨      S&P assigns BB+/Sta to PT Jasa Marga Persero Tbk (JM), Indonesia's state-owned toll road developer and operator. This rating reflects a weakening financial position over 2017-19, due to planned heavy capex to meet its target under the National Medium Term Development Plan (2015-2019) to develop 600km of toll roads. JM's debt is expected to double to IDR48tn in 2019 from 2016 levels. FFO/debt is therefore expected to rise to 5.5-7.5% form 9.5% 2016 and FFO/cash-interest-coverage is expected to fall to 2x from 2.9x in 2016.  The rating is supported by the view that as a strategic leading toll road developer and operator in Indonesia's road sector, and with a 70% controlling stake by the government, JM will benefit from extraordinary support from the government. There is also the added risk of execution of such a large project, country risk of operating in Indonesia, land acquisition and rights issues, and regulatory review for tariff changes by the government. JM is however supported by operating stability on the back of a good regulatory track record of tariff adjustment, with most tolls coming from well-seasoned strategic arteries in Greater Jakarta, and steady increase in traffic volume.

 

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