FW: RHB FIC Credit Markets Update - 22/11/17

 

 

 

22 November 2017

 

Credit Markets Update

           

All Eyes on 15y MGS 04/33 Reopening; FX Reserves Release Today Another Key Watch

MYR Credit Market:

¨      All eyes on 15-year MGS 04/33 reopening auction. Oil prices reversed its losses overnight to close at USD62.6/bbl, inching closer to the USD63/bbl level on the back of API's reports on declining output in U.S. crude stocks, as well as the potential oil output cut- extension beyond March 2018. MYR strenthening further rallied to a 13-month high versus the USD, gained +0.23% closing at 4.1400/USD yesterday. It is expected that the MYR would be well supported ahead of the foreign reserves figures for mid-Nov 2017 to be released today. The 3y MGS rallied strongly which saw yields tightened -5.6bps to end the day at 3.48% amid the increased demand for the short-dated security. Meanwhile, the 7y and 10y MGS ended mixed with the 7y MGS rallying -2.2bps while the 10y MGS steepened +2.4bps to converge once again at 3.96%. Investors will be focusing on the reopening of the 15y MGS 04/33 today. The wide spread of 60 bps above 10-year MGS is expected to attract some tactical value hunting especially for lifers and pension funds as it complements asset liability matching initiatives given the long-dated nature of these papers.

¨      Trading activities picked up strongly in the govvies space with total transactions of MYR3.9bn while corporate flows remained relatively quiet with volume increased to just under MYR314m. Focus was on short dated securities once again which accounted for 82% of total govvies trades though trading interests picked up relatively well for the benchmark securities. Among the most actively traded securities were the benchmarks 10y GII 07/27 and 3y GII 04/20 with MYR310m and MYR286m transacted respectively which saw both yields decline -3.8bps for the former and -3bps for the latter. On the other hand, benchmark 3y MGS 02/21 saw MYR136m changed hands -5.7bps lower at 3.48%. Meanwhile in the corporate bond space, the recently issued subdebt Bank Islam callable 11/22 was the top traded security with MYR60m dealt at an average yield of 5.03%. Besides that, UMWH 21s and 26s recorded combined transactions of MYR40m with yields compressed slightly to 4.62% (-0.8bps) and 4.99%(-0.3bps) respectively. Other notable trades include DIGI 4/24, AQUASAR 7/21 and ANIH 7/21 with volumes of MYR20m each ending the day 4.53%(-18.8bps), 4.32%(+2.1bps) and 4.58%(+1.4bps) respectively

¨      Over to ratings, MARC has affirmed the AAA rating on TRIplc Ventures Sdn Bhd (TVSB) carrying a stable outlook for its MYR240 million Senior Medium-Term Notes (Senior MTN) Programme. MARC's rating reflects the unconditional and irrevocable guarantee provided by Danajamin Nasional Berhad (AAA/Stable) on the Senior MTN obligations. Under the concession agreement of Universiti Teknologi MARA's (UiTM) Zone 1 Phase 2 project, TVSB is entitled to receive availability charges (AC) fixed at MYR42.5m per year along with maintenance charges (MC) payments from the project lessee, (UiTM), throughout the 20-year maintenance phase. In addition, TVSB's FCF stood at MYR32m after dividend pay-out of MYR10m. TVSB also planned to reduce its debt obligations following its principal repayment of MYR20m with a second principal repayment of MYR20m settled on 10-Oct 2017.

 

APAC USD Credit Market:

¨      Risk rally in the market leads to mixed UST performance. Risk rallies continued to dominate the market, though it has led to a mixed performance of the UST curve. The short end of the curve continued to weaken as the 2y and 5y USTs fell to 1.77% (+2.1bps) and 2.10% (+0.7bps), while the long end 7y and 10y USTs rallied to 2.26% (-0.5bps) and 2.36% (-1.1bps). The super-long of the curve also saw strong support as yields edged down -2.2bps to 2.76%. The result was a continuation of the flattening in the yield curve. The USD as seen by the DXY Index pared back some of its gains closing at 93.95 (-0.14%). The market is expected to see less activity into the last two days before the Thanksgiving holidays.

¨      Asia IG outperforms HY on the back of risk rally. On the back of falling USTs the day before, both the Asia ex Japan IG credit spreads and the Asia ex Japan HY bond yields tightened  to 158.7bps (-2.3bps), and 6.71% (unchanged) respectively. The iTraxx AxJ was rallied further to 78.21bps (-0.77bps).  Leading the tightening of the CDS levels were Korean corporates Korea Electric Power Corp, GS Caltex Corp, POSCO, SK Telecom Co Ltd, and KT Corp, which saw rallies of -2.4bps to -3.3bps.  HK issuers Hong Kong Land Co Ltd, Swire Pacific Ltd, Hutchison Whampoa Ltd and Sun Hung Kai Properties also saw CDS levels edge down -1.9bps to -1.8bps. On the other side, Chinese Fis Bank of China Ltd, Industrial & Commercial Bank of China, Export-Import Bank of China, and China Development Bank saw CDS levels widen +1.0bps to +1.7bps.

¨      S&P upgrades Powerlong Real Estate to B+/Sta from B/Sta. This is on the believe the company will continue to deleverage over the next two (2) years while earnings stability and capability to service debt is expected to improve on its expanding investment property portfolio. Land payments were RMB5.8bn in 2016, expected to increase RMB8-9bn in 2017, but still accounting for close to 40% contracted sales. Capex is expected to be manageable in the next two (2) years, given the sizable land reserve in line with its current strategic goals. 1H16 saw gross margins remaining solid at 36% due to low land costs and sizable high-margin rental income. Debt/EBITDA is expected to decline to 6.0-6.3x from 7.2x in 2016. Powerlong is expected to maintain sales growth of 15-25% in 2017 and 2018, with a balanced mix between commercial and residential projects.

¨      Moody's assigns A2/Sta on ICBC International. This rating is notched up based on an assumption of high level of support from its parent, Industrial & Commercial Bank of China Ltd (A1/Sta) and very high level of support from the Chinese government (A1/Sta).Since the establishment of ICBC International, ICBC has provided considerable support, while the HK branch also provides a guarantee for ICBC International's USD1.2bn MTN program. ICBC International is closely integrated into the operations of ICBC which also monitors liquidity and investment risks. Moody's assigns Baa2/Sta to Broadcast Australia Finance Pty Limited (BAF) guaranteed senior secured notes. BAF is the financing vehicle for BAI Communications Pty Limited, which designs, builds, owns and operates highly available communications networks. BAI owns and operates Australia's national terrestrial broadcasting network and owns equity in Transit Wireless LLC which has a 20y exclusive license to build and operate the New York City subway station's wireless communications network. The rating reflects BAI's strong operating track record, and the essential and strong market position it enjoys. Moody's regards the competitive threat posed by the National Broadband Network (NBN) as manageable for the next few years, due to low rollout, low penetration and high costs of service. The ratings are constrained however, by the high leverage the company has, which is expected to improve to above 9%, especially in light of its plans to separate from the Transit Wireless Group.

 

 

 

 

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