FW: RHB FIC Credit Markets Update - 29/11/17

 

 

29 November 2017

 

Credit Markets Update

                                               

GII 04/22 Reopening Garnered BTC of 1.72x

MYR Credit Market:

¨      MYR continued to rise; 5Y GII 04/22 reopening drew weak BTC. The 5y GII 04/22 reopening garnered a moderate BTC of 1.72x with tender average yield of 3.872%, compared to BTC of 2.77x recorded at the previous auction in Apr-17. The issuance size was at MYR3bn. Meanwhile, the 3y MGS remained unchanged with yields holding firm at 3.39% overnight. The 10y MGS, on the other hand, saw yields continue to inch higher, closing +4bps to reach 3.95%. The MYR resumed its strengthening against the greenback with the currency traded +0.28% higher to settle at 4.1025/USD. Global markets seen taking stock in response to the North Korean missile launch testing yesterday, which may dampen risk appetite.

¨         Govvies trading activities remained thin pending of fresh leads with volume just under MYR1.8bn while trades in corporate segment easing lower to MYR289m. As expected, trades were mostly concentrated on the newly reopened benchmark 5y GII 04/22 with transactions amounting MYR840m, closing 3.872% (+4bps). Longer dated benchmark 15y MGS 04/33 saw trading interest pick up with MYR111m in total transactions to settle –1bp lower at 4.48%. Meanwhile in the corporate bond space, CAGAMAS 18s and 20s recorded combined trades of MYR40m to settle at 3.60% (-4.3bps) and 4.07% (+9.8bps) respectively. AAA-rated TTM 11/21 saw MYR35m change hands settling higher at 4.24% (+3.7bps) of which it was last traded in Apr-17. Other notable trades include DANAINFRA 11/47 and DANAJAMIN 10/27 with trades of MYR20m each which saw both yields ending the day a tad higher at 5.36% (+0.8bps) and 4.78% (+0.5bps) respectively.

APAC USD Credit Market:

¨      Fed Chair Nominee Testifies before Senate; North Korea fires missile. The new nominee for the post of Fed Chair, Jerome Powell testified before the Senate Banking Committee, reiterating that the rate hike trajectory and balance sheet consolidation should continue to occur but declined to give more details on an expected timelines. He did however suggest that the Dodd-Frank Act could be too big to fail and imposed an unnecessary burden on the banking sector. The economic front saw the Conference Board consumer confidence surge to 129.5 Nov from 125.9 in Oct, while the Richmond Fed Manufacturing Index soared to 30 in Nov from 12 a month ago. North Korea on the other hand tested a new intercontinental ballistic missile into the Sea of Japan raising concerns especially as some analyst expect this latest missile may now put the US East Coast in range. The response from the US, Japan and South Korea have been more measured with calls for dialogue currently occurring. The 2y and 10y USTs remained weak as they ended at 1.74% (+0.6bps) and 2.33% (unchanged) respectively. The 30y UST remained anchored as it strengthened -1.0bps to 2.76%. The DXY Index continued to rally, a further +0.39% to 93.27. As the market continues to digest the possible repercussions of the North Korean missile, the US GDP numbers will be closely watched.

¨      Credit spreads expand on UST rallies and geopolitical concerns. On the rallies in the UST curve and increased geopolitical concerns, the Asia ex Japan IG credit spreads and the Asia ex Japan HY bond yields remained largely unchanged at 162.6 (+1.4bps) and 6.73%(+2bps). The IG iTraxx AxJ showed a strong rally and ended the day at 73.82bps (-2.58bps).  Leading the rally in CDS levels was the sovereign of South Korea, where CDS levels moved down -3.2bps, whereas Korean corporates Korea Electric Power Corp, GS Caltex Corp, POSCO, Hyundai Motor Co, KT Corp and SK Telecom Co Ltd all saw CDS levels tighten between -2.0 to -2.4bps. The Malaysian sovereign also saw CDS levels come down close to -1.6bps. Indian financials, namely State Bank of India, Bank of India, and ICICI Bank Ltd saw CDS levels increase between +2.0 to +3.1bps higher.

¨      Following removing it from negative review for downgrade, Moody's revised the outlook on Yuzhou Properties Co Ltd to Ba3/Sta from B1. This follows expectations of Moody's that the credit metrics will improve over the next 12-18 months. Contracted sales grew to RMB32.4bn (59% YoY), expected to see another 20% improvement in 2018. The revenue is expected to pick up to RMB20bn 2017 (40-50% YoY). Net debt on the other hand is expected to increase RMB3-4bn in 2017 and 2018, based on substantial amount of land banking in 2017. The company still suffers from moderately high debt leverage from its strong land acquisition and high level of cash held. Liquidity remains strong with cash to short term debt at 3.6x at Jun-17, while offshore funding access increased with syndication loans of USD400m Nov-17 and share issuance of HKD1.56bn Sep-17. Moody's expects EBIT/interest coverage to improve to 4.0-4.5x and adjusted revenue/debt to increase above 70-75% over the next 12-18 months.

¨      S&P assigns BBB/Sta to Qingdao Conson Development (Group) Co Ltd. The group is one of three (3) local government financing vehicles (LGFV) owned by the State-owned Asset Supervision and Administration Committee (SASAC) of the Qingdao government, specializing in financing and constructing major transportation and civil facilities in Qingdao. The rating on the group reflects the very important role it plays to the government, underpinned by the public and policy nature of the projects undertaken, therefore S&P assumes high likelihood of receiving extraordinary government support over the next 24 months. Wholly owned by the Qingdao government, any potential default would result in reputational damage to the government of Qingdao. Similar to most LGFV issuers, the group has high reliance on the government's payments and capex plans. The company also suffers from a highly leveraged balance sheet and meager cash flow generation due to the typical LGFV business model. Fitch assigns BBB/Sta to Xiamen Xiangyu Group Corp. In light of the 100% ownership, strong control of ad oversight, and strong financial impact to the shareholder, the group's rating and credit are linked to China's Xiamen municipality. The group receives steady government financial support via asset and capital injections, subsidies, tax returns, share transfers and project supporting funds to enhance financial stability and boost capex. The group is a key developer and operator of Xiamen's Xiangyu Bonded Area and free-trade zone. The company is also responsible for the city's food and grain preservation. Total debt at the group amounted to CNY28bn end-16, with debt/EBITDA estimated to be 7-12x between 2014-16, and EBITDA/interest coverage averaging at 2x.

 

 

 

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