FW: RHB FIC Credit Markets Update - 14/12/17

 

Credit Markets Update

           

December Fed Hike As Expected; New 15.5y GII 06/33 Tender in Focus

MYR Credit Market:

¨      New benchmark 15.5y GII 06/33 focuses attention. The 3y MGS rallied -2.0bps to 3.38% whereas the 10y MGS weakened -0.2% to 3.97%. The MYR, on the other hand, continued to weaken to close at 4.0872/USD (-0.21%), underperforming the rest of EM Asia. With the Fed FOMC out of the way, attention will now be focused on the auction of the new benchmark 15.5y GII 06/33 which closes later today. Considering the small auction size and the rally in the global bond markets following the results of the Fed FOMC, we could see a weaker average yield if not a better BTC compared to recent results. The weakening USD should also benefit the MYR, though the recent fall in Brent crude prices following OPEC's revised estimates for oil supply in 2018 may limit its ascent. Brent crude oil prices fell to USD62.44/bbl (-1.42%).

¨      Govvie trading volume continued to fall to now total MYR868m. Trading in the govvies continue to see a reduction in volume. Govvie trades were evenly distributed among the tenors though still heavier on the short end. Benchmark 3y MGS 02/21 saw MYR125m of trades at 3.38% (-2.0bps) whereas benchmark MGS 11/27 saw MYR89m traded at 3.97% (-0.2bps). Other notable trades were the benchmark 5y GII 04/22 which saw MYR80m traded unchanged at 3.90% and the off-benchmark 09/18 which saw yields rise +12.8bps to 2.80% on MYR179m trades.

¨      Secondary trading in the corporate bonds remained strong with MYR398m trades recorded. PLUS accounted for MYR100m of total trades as PLUS 24s, PLUS 26s, PLUS 27s and PLUS 31s changed hands at 4.44% (-1.2bps), 4.55% (-15.1bps), 4.62% (-0.7bps) and 4.90% (-1.9bps) respectively. Over in the shorter end of the corporate space, UEMS 12/18 saw MYR40m change hands with yields down -0.6bps at 4.34%. CAGAMAS saw MYR67m of trades for the CAGAMAS 10/20, CAGAMAS 02/19, CAGAMAS 08/18 and CAGAMAS 03/18 as yields rallied between -2.1bps and -21.8bps to close at 4.00%, 3.67%, 3.63% and 3.40% respectively

¨      The primaries saw strong pipelines in the market totaling MYR2.78bn. Cagamas Berhad came to market for MYR1.5bn of AAA rated 5y bonds at 4.25%, 57.5bps over the last traded benchmark 5y MGS. Lafarge Cement Sdn Berhad printed MYR100m sukuks. The 3y AA2 rated sukuks saw profit rates of 5.00%, 161.7bps above the benchmark 3y MGS. Westports Malaysia Sdn Berhad on the other hand issued MYR150m AA+ rated sukuks in three (3) tranches of 4y, 5y and 10y with profit rates of 4.53%, 4.58% and 4.90%. Maybank Islamic Berhad tapped the market for MYR1bn from its AA3 rated MYR10bn AT-1 Capital Securties Programme. The Pnc5 bonds have coupons of 4.95%, 127.5bps above the 5y benchmark MGS.

APAC USD Credit Market:

¨      USTs rallied as Fed raised benchmark interest rate to 1.50%. In line with expectations, the FOMC has made the decision to raise the short-term rates from 1.25% to 1.50%. The FOMC's projected three (3) hikes in 2018 remained though the US real GDP is forecasted to increase to 2.5% from 2.1% and unemployment rate expected to decline to 3.9% next year. These upward projections were, however, missing in the CPI forecasts for 2018. Also released yesterday was the CPI data for Nov as inflation level rose to 2.2% YoY from 2.0% recorded previously, in line with projected figures. Core inflation, however, slowed from 1.8% to 1.7% YoY. The USTs saw a rally as yields declined sharply across the curve. The 2y USTs rallied to close the day at 1.77% (-5.3bps) while the 5y USTs saw yields falling to 2.10% (-6.7bps). The longer end of the curve also saw a fall in yields with the 10y USTs rallying to 2.34% (5.9bps) and the 30y USTs rallied to 2.73% (-4.9bps). The DXY Index ended the day lower from the previous day at 93.4, a decline of -0.71% overnight.  Focus now turns to the ECB and BoE meetings later today where interest rates are expected to end the year unchanged.

¨      South Korea led tightening in AxJ IG CDS. The iTraxx AxJ IG spreads reversed as it tightened to 70.5bps (-3.7bps). South Korea players led the tightening in the CDS space with spreads closing between -17.8bps and -10.5bps, which include GS Caltex Corp, Samsung Electronics Co. Ltd and Korea Electric Power Corp as well as Fis Industrial Bank of Korea, Kookmin Bank and EXIM Bank of Korea. Sovereign South Korea also saw CDS level declining approximately –11.1bps, followed by Indonesia, Malaysia and Thailand with spreads tightening between -5.2bps and -6.2bps. Meanwhile, leading the widening in the CDS space was Bank of India which saw spreads widen approximately +3.4bps, followed by ICBC Ltd and Hutchison Whampoa Ltd as both levels increased about +2.3bps.

¨      Moody's has placed Scentre Group on review for downgrade from A1/Neg. This review follows a management guidance announced by Scentre Group in which it intends to manage financial ratios relevant to Moody's reviewed guidelines, which would be more consistent with an A2 long term rating. Scentre's net debt/EBITDA stands at close to 6.6x, while Moody's had previously stated that the ratings would be downgraded if the group's sustained net debt/EBITDA was above 6.0x. Moody's has placed a review for downgrade on B1/Sta-rated Indiabulls Real Estate Ltd (IBREL) following the recent acquisition of Indiabulls Properties Investment Trust (IPIT). IBREL is expected to sustain leverage level of approximately 6x over the next 12-18 months as estimated by adjusted debt/homebuilding EBITDA. IBREL has been planning to monetise a minority stake in Indiabulls Commercial Assets Limited (IBCAL) after IBREL's commercial and leasing assets sold to IBCAL back in Apr-17. IBREL recorded a 13.6% increase in revenue from operations in 1H FY18 though operating performance remained below Moody's expectations. Nevertheless, Moody's opined that returning to the leverage level that will position IBREL well at the current rating would be difficult should debt reduction remains absent.

¨      Moody's has placed the A3/Sta-rated Westfield Corporation on review for upgrade. The review is reflected on the potential acquisition by Europe's largest real estate company, Unibail-Rodamco SE (Unibail) with an A2 rating, which was announced earlier. The acquisition of the global mall landlord is expected to consolidate their strong portfolios in the European and US retail markets as the combined entity will create a total of 56 flagship shopping center and mall in most major cities in their respective regions, thus, possibly maintaining strong trend in occupancy and high quality tenant base. Gross market value of the two entities' assets totalled about USD70bn of which Unibail accounted for 70%. As per the proposed transaction terms, the cash consideration will account for a third of the acquisition cost. Shareholders of the stapled Westfield group will also receive stapled securities of Unibail shares and a new Dutch REIT that will own the US assets. Unibail will own 40% of the new Dutch REIT and will fully consolidate its financial results. Cross guarantees between Unibail and Westfield will also provide additional support to Westfield's outstanding debt obligations. The projected timeline for completion is in 1H18.

 

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