FW: RHB FIC Credit Markets Update - 21/11/17

 

 

 

21 November 2017

 

Credit Markets Update

           

MYR below 4.15/USD; Yellen Plans to Resign FOMC

MYR Credit Market:

¨      Weak bond trading ahead of heavy issuance expectations despite rally in the MYR. The MYR continued to see a rally grinding to close below 4.15 at 4.1495/USD (+0.28%), on continued positive sentiment from the previous week. Weak bond trading on the other hand saw bond yields largely unmoved, with the 3y MGS remaining at 3.54% while the 10y MGS rallied -4.2bps to 3.94%, now yielding below the 7y MGS. The reopening of the 15y MGS 04/33 has been announced to take place on the 23^rd Nov with a planned issuance of MYR2bn, and an additional MYR1bn privately placed.

¨      Secondary trading falters once more with total govvie volume declining to a mere MYR1.4bn while corporate bond volumes fell to MYR203m. MGS and GII trading totaled MYR1.4bn, with 91.3% of total govvie trades concentrated in maturities below 3y. The most active trade was seen in off benchmark MGS 03/20 where MYR208m changed hands at average of 3.45% (-1.8bps). Corporate trades saw MYR203m change hands. CIMB T1 perpetuals callable 05/21 saw MYR41m change hands +32.9bps higher at 5.31% since traded a week ago while short-dated YTL Power 18s saw yields edge up +2.5bps to 4.11%.

¨      In the primaries, Puncak Wangi Sdn Berhad tapped the market for MYR155m from its MYR200m sukuk murabahah program, guaranteed by Danajamin. The AAA-rated 2y sukuks were issued with coupons of 4.50%.

APAC USD Credit Market:

¨      Risk rally in the market leads to UST falls; flattening continued. Risk on has took hold once more in the market, leading to a weakening of the USTs. This was partly attributed to shift in asset allocation following increased concerns in Europe following the failure to form a government in Germany. On economic news, the Conference Board Leading Index saw a pick-up of 1.2% MoM for Oct, from a revised +0.1% in Sep beating consensus expectation of 0.8%. The 2y UST yields rose +2.9bps to 1.75% while the 10y USTs saw yields rise +2.3bps to 2.67%. The 30y USTs remained largely anchored at 2.78% (+0.2bps). The USD as seen by the DXY Index closed higher at 94.08 (+0.45%). As the market continues to look forward to the tax reform bill expected to go through the US Senate after the long weekend, current Fed chair Janet Yellen expressed her plans to step down from the Board of Governors once her successor is sworn into office.

¨      Asia spreads continue to tighten. Despite the UST bull flattening on Friday leading to the new week, both the Asia ex Japan IG credit spreads and the Asia ex Japan HY bond yields tightened -0.4bps and -2.0bps to 161.5bps, and 6.71% respectively. The iTraxx AxJ was largely rallied to 78.9bps (-0.58bps).  Unwinding the rally the week before, the sovereigns of Indonesia and the Philippines saw CDS levels spike up close to +1.4bps and +1.0bps respectively. Hong Kong corporates Sun Hung Kai Properties, Swire Pacific Ltd, Hong Kong Land Co Ltd, and Hutchison Whampoa Ltd saw CDS levels widen +1.9bps to +2.8bps. Leading the tightening of CDS levels were Kookmin Bank, Korea Development Bank, Samsung Electronics Co Ltd and Hyundai Motor Co which moved down -1.1bps to -2.2bps. Telekom Malaysia Bhd and Petroliam Nasional Bhd saw CDS levels tighten close to -1.7bps and -1.0bps respectively.

¨      Moody's upgrades Vedanta Resources PLC bonds to B2/Sta from B3/Sta. This upgrade is based on the view that the relatively benign operating environment and stabilizing commodity prices will aid in enhancing the company's EBITDA and cash flow generation. Moreover, Vedanta's effort to reduce absolute debt levels following the merger of its subsidiaries, is expected to lead adj debt/EBITDA to decline to 3.4x by Mar 18 from 3.7x Sep 17. In addition, the unsecured bond issuances in 2017 totalling USD2bn and USD840m term loan for refinancing constitute proactive steps towards lengthening the debt profile. Moody's revises Doosan Bobcat Inc to Ba3/Sta from B1/Sta. This is based on expectations that the financial leverage will improve on the back of debt reduction and healthy earnings. The earnings are expected to improve in 2018, driven by steady demand from end-markets, supported by continued infrastructure spending. In addition, efforts to prepay its term loan of USD100m would reduce reported debt to around USD1.24bn end 18, with the expected ability to further pay down term loans with sizable cash balances of close to USD350-360m end 2017. Adj debt/EBITDA is expected to fall to 3.1-3.2x over the next 12-18 months from 3.4x in 2016. Moody's assigns B1/Sta to BlueFocus Communications Group Co Ltd. This public relations/advertising company enjoys a long track record and market leadership in China especially in mobile and digital, with a blue chip customer base which generates steady cashflows. While the revenue saw CAGR of 51% between 2013 and 2016, adjusted EBITDA margins declined to 7.6% 2016 from 18.0% 2013, with expectations it will stabilize at 8-9% over the next two (2) years with the company's scale and widening service offering, and as it integrates its acquisitions. Acquisitions and investments have increased adjusted debt/EBITDA to 6.9x 2016 from 1.2x 2013, expected to decline to 5.2x in 2018 and 4.7x 2019, driven by growth in EBITDA. It has modest liquidity position, with RMB2.1bn in short term debt at end Sep 17 and is estimated to have RMB1.5bn in acquisition and dividend payments due in the next 12 months. The requirements is expected to be met combining its RMB2.0bn in cash with operating cash flows and refinancing.

 

 

 

 

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