FW: RHB FIC Credit Market Updates 241117

 

 

24 November 2017

 

 

Credit Markets Update

                                               

MGS and MYR Continue to Rally, CPI Data Closely Watched

MYR Credit Market:

¨      MYR traded higher versus USD; CPI figures released today. The MYR remained stronger against the USD as it traded +0.08% higher to reach 4.1080/USD overnight, a level not seen since Aug-15. The 5y-10y MGS continued to rally as yields declined between -1.2bps and -3.8bps to close lower at 3.60%, 3.87% and 3.91% respectively on the back of steady secondary flows in the govvies bond space. The MGS 3y, on the other hand, reversed its gains slightly as yields inched +1.6bps to end the day at 3.39%. Looking ahead,  CPI data for the month of Oct-17 will be released later today with inflation forecasted to moderate from the 4.3% recorded in September (consensus: 4.1%).

¨         Govvies trading activities remained strong at MYR4.6bn. Newly reopened benchmark 15y MGS 04/33 attracted volume of MYR329m, dealt -0.9bps lower at 4.46%. Benchmark 10y GII 07/27 continued to attract strong interest among investors recording MYR350m in total transaction as yields eased -1.9bps to close at 4.24%. Benchmark 5y MGS 03/22 saw MYR137m changed hands at 3.60%, closing -3.8bps lower from previously traded. Meanwhile, off-benchmark MGS 03/20 saw trade volume totaling MYR532m rallying -8.9bps to settle at 3.22%. Off-benchmark MGS 09/25 and MGS 09/21 totalled trades of MYR295m and MYR120m respectively which saw yields declined -1.5bps for the former to end the day at 4.14% and -0.3bps for the latter settling at 3.65%.

¨         Muted corporate flows as volume plummeted to just under MYR218m. AAA-rated DANGA 04/20 was the top traded security at MYR45m which was last traded at 4.09% (-0.5bps). AA3-rated BGSM 18s, 20s and 23s recorded combined transactions of MYR40m with yields closing at 4.19% (-0.8bps), 4.48% (-2.2bps) and 4.71% (-2.8bps) respectively. Besides that, AAA-rated RANTAU 08/19 and 12/20 saw combined trades of MYR20m with yields settling at 3.99% (+6.1bps) and 4.08% (+6.8bps) respectively.

¨         MARC reaffirmed AAAIS rating on Gas District Cooling (Putrajaya) Sdn Bhd (GDC Putrajaya). The rating affirmation continues to factor in a three (3)-notch rating uplift for parental support from Putrajaya Holdings. GDC Putrajaya continues to enjoy a strong competitive position and steady revenue stream generated under long-term off-taker agreements, though increasing operating costs and lack of pass-through mechanisms have weakened profitability. Pre-tax profit increased to MYR15.4mn 1H17 after declining 70.7% YoY to MYR3.3mn 2016. Profitability is still suffering due to the rationalization of gas subsidies by the government since 2015 and the fact the chilled water variable charges to the government is lower than the cost of production. Leverage remains low at 0.26x, while CFO is expected to weaken from the current MYR13.4mn on weaker earnings expectations. Liquidity is expected to remain adequate with current cash balances of MYR83.5mn sufficient to meet the MYR50m due in Dec-17 with ample time for cash accumulation before the final repayment of MYR50m in Dec-22. RAM assigns AA-/Sta to Medini Iskhandar Malaysia Sdn Bhd (MIMSB)'s proposed MYR1.5bn sukuk murabahah programme. MIMSB is the master developer of Medini Iskhandar Malaysia, a 2,230-acre township in Iskhandar Puteri in the Iskhandar Malaysia economic region in Johor. It has land leases with approved gross floor area (GFA) of 45mn sq ft that it may directly develop on its own or via joint ventures. MIMSB is 52% owned by Khazanah Malaysia, and is deemed a credit uplift by the rating agency while also enjoying fiscal and non-fiscal incentives unique to the region. In addition, the terms of the proposed sukuk programme requires MIMSB to pledge assets with market value of at least 1.67x the sum of any outstanding sukuk throughout the tenure of the programme. MIMSB's rating is limited by its short track record (since 2012) in property development. Over 2017-2026, MIMSB plans to complete development projects with total GFA of 12mn sq ft, with funding requirement of MYR1.5bn via the sukuk programme. Annual funds- from-operations debt coverage (FFO/Debt) is expected to be below 0.10x, and no FCF is expected up to 2020. MIMSB's future financial projection remains fluid as most projects are still in planning stage

APAC USD Credit Market:

¨         Market closed for Thanksgiving. The US markets were closed for the rest of the week with the Thanksgiving and the post-Thanksgiving holidays.

¨         CDS levels tightened in Asia IG Credit. The iTraxx AxJ continued its tightening as it rallied further to 76.07bps (-1.08bps). Leading the tightening of the CDS levels were Kookmin Bank, Samsung Electronics Co Ltd, Korea Development Bank, Export-Import Bank of Korea, China Development Bank, Industrial & Commercial Bank of China Ltd, and Bank of China Ltd which saw CDS levels edge down between -0.6bps to -1.7bps. The CDS of the Philippines sovereign tightened close to -0.9bps. Leading the widening of CDS spreads, were PCCW-HKT Telephone Ltd and Hyundai Motor Co with CDS widening around +0.7bps and +0.3bps respectively. China's sovereign CDS levels widened nearly +0.2bps.

¨         Fitch upgrades the rating of AIA Group Limited (AIA) to AA-/Sta from A+/Sta. This upgrade would close the gap between the rating of the holding company and the insurance operating company follows ongoing discussions with the management and Fitch's expectations that the group will maintain low financial leverage and very strong fixed-charge coverage.  AIA has good access to capital markets, as a listed company on the HK Stock Exchange and is expected to maintain low financial leverage at below 16% (9% May-17) in spite of the external debt financing to fund the proposed acquisition of Commonwealth Bank of Australia's life and health insurance business.

¨         Fitch has downgraded ratings on Sime Darby Berhad to BB+/Sta from BBB+/Sta. This follows the approval received for its demerger plans of plantation and property businesses which will reduce the benefits of diversification. Both businesses contributed a large portion to the group's cash flow and earnings, accounting for approximately 70% of consolidated EBITDA for FY16. The group's remaining businesses, mostly focused on motors and industrial equipment dealerships, have lower profit margins in addition to increased market volatility due to the structure of these businesses. The group's motors division contributed 66% in revenue as at FY17 while their industrial division recorded 33% in revenue as at FY17. The group's leverage profile remains a concern despite the restructuring undertaken within the group. Fitch, however, has forecasted the group's FFO-adjusted net leverage to be around 3x in FY18. Deleveraging is expected to improve by FY20 to reach below 2.5x contributed by increasing EBITDA. Fitch assumes the group's capex requirements will not increase due to the group's smaller business operation scale, and coupled with an expected decrease in cash dividend outflow, should improve FCF from FY19. Fitch has also assigned BBB+/Sta on Sime Darby Plantation Berhad (SDP) removing the Rating Watch Negative (RWN) on the USD1.5bn sukuk programme and the outstanding issuance under the programme which was transferred to SDP from the demerged Sime Darby in with BBB+ affirmation. To be listed as a standalone entity by end-Sep17, SDP's rating was at the same level as Sime Darby's, before the demerger of its plantation and property businesses. The plantation business was considered Sime Darby's strongest division which contributed largely to Sime Darby's cash flows and earnings, accounting for 27% of revenue and 44% of EBITDA as at consolidated FY16

 

 

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