FW: RHB FIC Credit Markets Update - 19/12/17

 

 

19 December 2017

Credit Markets Update

           

Trading Volume Thins, Focus on November CPI Tomorrow; US Tax Bill A Key Watch

MYR Credit Market:

¨      Trading volume stayed thin pending of fresh leads ahead of November CPI and foreign reserves release. The MYR moderated to 4.0815/USD (-0.05%) against the greenback ahead of November CPI release. Consensus expects inflation to ease to 3.4% in November versus previous level of 3.7% back in October. Foreign reserves release on Friday will also be another key watch as foreign reserves have been steadily improving with previous level at USD101.9bn.

¨      Govvie trading remained thin.  Trading volume for MYR govvies stayed thin with transacted amount less than MYR1bn, with only MYR669m changing hands. Most of the trading activities were concentrated on the short to belly of the curve. The benchmark 3y MGS closed at 3.35%, with MYR133m dealt. The benchmark 10y MGS meanwhile ended at 3.96%, with current 10v3 spread hovering at 60-61 bps.

¨      Similar momentum seen for trading of corporate bonds/sukuk with traded volume lower. Only MYR429m worth of corporate bonds/sukuk changed hands yesterday tracking the momentum on the govvies space. Long-dated DanaInfra 11/47 saw levels dealt at 5.33%, whilst Bumitama 9/19 traded at 4.58% level. In the banking/financial sector space, Public Bank sub-debt NC5 callable 10/23 seen transacted with MYR40m dealt, with levels closing at 4.29%

¨      RAM has assigned an AAA/Sta rating to CIMB Islamic Bank Berhad's (the Bank) proposed MYR10bn Sukuk Wakalah Programme. The rating agency also reaffirmed the Bank's AAA/Sta/P1 financial institution ratings; these ratings are premised on those of CIMB Bank Berhad (rated AAA/Sta/P1). CIMB Islamic's ratings reflect our anticipation of solid support from CIMB Group Holdings Berhad (the Group) given the Bank's strategic importance as the latter's Islamic banking arm. Operating under a universal-banking platform, CIMB Islamic is operationally integrated with CIMB Bank and CIMB Investment Bank Berhad (rated AAA/Sta/P1). The expansion of CIMB Islamic's financing base has been propelled by the adoption of the Group's Islamic First strategy for its Malaysian operations. The Bank's annualised 18.1% financing growth in 9M fiscal 2017 (fiscal 2016: 16.7%) was mainly driven by financing  for the purchase of Amanah Saham Bumiputra unit trust funds, working capital, and residential property. The asset quality of CIMB Islamic's various financing segments remained strong during the same period, with an overall gross impaired-financing (GIF) ratio of 0.7% as at end-September 2017 (end-December 2016: 1.0%). Including its regulatory reserves, the Bank's GIF coverage ratio stood at a sturdy 145.7%.

APAC USD Credit Market:

¨      USTs ended mixed as Tax Bill nears passage. The passing of the tax overhaul remained a key watch as the House and Senate are expected to set votes tomorrow after releasing their proposal of the spending bill last Friday. Despite the two chambers failing to reach an agreement before the initial deadline about two weeks ago, there is a strong expectation that the final bill will be pushed before the federal government's current temporary funding expires on 22^nd Dec, which will subsequently be sent to President Trump for approval. The revised tax measure, however, has raised concerns whether the substantial changes made in the tax code will be able to promote economic growth as the revamped version of the bill is estimated to further deteriorate fiscal deficit. The USTs ended the day mixed of which the longer end of the curve registered moderate losses overnight while the shorter-dated note was seen reversing from previous fall. After reaching a low level that was not seen for nearly a decade, the 2y USTs rallied overnight to 1.83% (+1bp) on the back of continued sentiment post-FOMC result. Meanwhile, the 10y USTs weakened as yields rose to 2.39% (+4.1bps) while the 30y USTs saw yields steepening to 2.74% (+5.3bps). The DXY Index fell slightly to close at 93.7 (-0.25%). Over in economic data releases, NAHB Housing Market Index for the month of Dec. showed an unexpected increase at 74 (consensus: 70). All eyes will be on the release of US 3Q17 GDP QoQ on annualized basis later this week.

¨      South Korea corporate led the tightening in AxJ IG CDS. The iTraxx AxJ IG spreads fell a tad lower to settle at 69.8bps (-0.5bps). Over in CDS space, South Korea corporate, POSCO led the tightening for the day with spreads closing about -1.5bps, followed by India's Reliance Industries Ltd with levels falling nearly -1.2bps. Sovereign Indonesia also saw a decline in spreads of approximately -0.7bps. Meanwhile, widening in the CDS space was led by South Korea Fi Kookmin Bank as spreads rose close to +1.3bps. Also seeing levels widen was sovereign Thailand which saw spreads edging nearly +0.7bps higher.

¨      S&P has upgraded the ratings on Geely Auto to BBB-/Sta from BB+/Sta. The upgrade is mostly driven by the improving credit strength of parent Zhejiang Geely Holding Group Co. Ltd (Zhejiang Geely). Debt leverage is forecasted to reduce over the next 12 to 24 months as Zhejiang Geely is expected to benefit from sturdy operating cash flows generated from auto sales contributed by subsidiaries Geely Auto and Volvo Cars of which both entities have been enjoying positive growth recently. Geely Auto recorded 66% increase in sales volume YoY at 1.09m in total vehicles for the first 11 months this year and is projected to reach more than 1.2m units for the year 2017 while Volvo Car continues to excel in marketing and sales execution. Any rating changes on Geely Auto will depend on the credit metrics performance of Zhejiang Geely. Currently, Zhejiang Geely's EBIDTA margin and debt/EBITDA ratio continued to hover above the 6% and 1.5x level respectively. The group's EBITDA margin, on the other hand, remained above the 10%. S&P opined that positive FOCF generation by Geely Auto coupled with limited interest-bearing debt should allow Geely Auto to sustain a net cash flow position over the next 12 to 24 months. Fitch has upgraded the ratings on China Metallurgical Group (CMGC) to BBB+/Sta from BBB/Sta. The rating upgrade reflects the equalized rating with its parent Minmetals Corporation Limited due to strong linkages between them as per Fitch's top-down approach assessment. Concurrently, CMGC's subsidiary Metallurgical Corporation of China (MCC) also received a same rating upgrade on similar grounds. Liquidity profile for CMGC remains robust with a total of CNY40bn in cash and CNY334bn of unutilized bank facilities while CNY120bn of gross debt seen recorded as at end-2016 and likely to be well supported by strong capital-market access despite the increasing number of projects. Contributed by the positive growth pick up in the in the steel industry, CMGC saw construction contracts reaching CNY298bn in 1H17 and expected to further increase by 22% YoY. In addition, MCC had about 66 PPP projects under construction, with recognized revenue of CNY9.4bn as at end-2016 and was awarded 56 PPP infrastructure projects, valued at CNY110bn as at 1H17. The debt raised for the PPP projects is directed to CMGC, acting as a minority- interest for investor.

¨      Fitch has placed a negative watch rating on BBB+ rated Global Logistic Properties (GLP) following GLP's proposal to privatize in Jan-18 which has been approved by shareholders as part of its financing plan. It will be delisted once acquisition by management-led consortium completes. GLP's leverage position may deteriorate due to the possible acquisition of shares though GLP should be able to capitalize the low interest rates in Japan and low leverage at its China operations for debt optimization as part of its deleveraging options. GLP had total debt of USD6bn of which short-term debt and cash accounted for USD1.7bn and USD1.1bn respectively as at end-Sep17.

 

 

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