FW: RHB FIC Credit Markets Update - 5/12/17

 

 

 

5 December 2017

 

Credit Markets Update

                                               

MGS Bull Flattens; SEB Issues MYR1bn

MYR Credit Market:

¨      MGS bull flattens; MGS 11/27 reopening announced. The 3y-10y MGS saw a bull flattening as the 3y MGS saw yields fall -1bps to 3.39% whereas the 10y MGS rallied -4.3bps to 3.85%. In line with most of the major currencies in EM Asia, the MYR continued to see an upward push as it edged toward 4.063/USD, gaining 0.7% overnight. This despite the recent risk selloff across the region and the risk on in the US market, as the market digests the passing of the US Senate version of the tax reform bill. The recent fall in global bond markets may see a similar pressure on the local bond markets especially in light of the upcoming reopening of MGS 11/27 to be issued on 7th Dec.

¨      Govvies remained healthy as trades recorded at MYR2.5bn. Trading were mainly concentrated on the benchmark issues as the benchmark 5y, 7y and 10y MGS, MGS 03/22, MGS 09/24 and MGS 11/27 saw trades totaling MYR112m, MYR329m, and MYR265m respectively bringing yields down -1.5bps, -2.6bps and -4.3bps respectively. The benchmark 15y MGS 04/33 saw a strong MYR217m change hands closing at 4.42% (-3.3bps). The benchmark 5y GII 04/22 also saw increased activity with MYR95m dealt at 3.88% (-0.3bps). Off benchmark MGS 08/23 saw MYR110m trades recorded at 3.85%, closing -4bps from its last traded last week.

¨      Secondary trading in the corporate bond space falls to MYR154m. Short dated UEMS 12/18 and ANTARASTEEL 06/18 saw trades of MYR30m and MYR10m respectively, closing at 4.35% (+4.6bps) and 3.91% (-19.1bps). LPPSA 04/22 settled stronger at 4.15% (-1bp) with a recorded volume of MYR25m. UMWH 21s recorded MYR20m traded at 4.60% (-1.5bps) whereas PUTRAJAYA 12/21s closed at 4.30% (+3.8bps) with MYR15m changing hands.

¨      The primaries remained strong with a total of MYR1.1bn printed. Sarawak Energy Berhad tapped the market for an additional MYR1bn from its MYR15bn Sukuk Musyarakah programme, bringing total issuances from said programme up to MYR10.5bn. The AA1 rated 15y sukuks were issued with coupons of 5.32%, 90bps over the corresponding benchmark MGS. Northport (Malaysia) Berhad on the other hand printed MYR100m from its MYR1.5bn IMTN programme. The AA- rated 5y bonds had coupons of 5%, 141bps over the benchmark 5y MGS. Also issuing in the primaries were Damansara Realty Berhad with MYR3m and West Coast Expressway Sdn Berhad with MYR23.2m.

¨      On economic news, the Nikkei Malaysia manufacturing PMI was recorded at 52.0 in Nov, from 48.6 in Oct. This was the highest PMI number seen since Apr-14, and saw it recorded above the 50 level for the first time since Aug-17. This increased expectation in the manufacturing sector should bode well for the performance of the sector in 1Q18.

 

APAC USD Credit Market:

¨      USTs bear flattened following the passing of Senate tax reform bill. Focus was mainly on the progress of the Tax Reform Bill as the Senate has passed its version of the tax legislation over the weekend and it is now in the reconciliation phase of which it has to be approved by both the House and Senate. Despite the bolstered confidence among investors on Saturday's outcome, there is also a rising concern on the potential fiscal deficit widening due to the tax legislation. On the back of a risk rally with expectations of the bill will be passed before Christmas, the USTs weakened which saw the USTs yield rose across the curve. The 2y UST fell further with yields climbing to 1.81% (+4bps) while the 10y UST saw yields rise to 2.38% (+2bps) on the back of positive economic growth and inflation expectations. The 30y USTs remained largely unchanged at 2.76% (+0.2bps). The DXY Index rebounded as it rose +0.33% to 93.2. In the week investors will watch for the passing of the US House of Representative short term spending bill which will need to pass before another government shutdown occurs at the end of the week.

¨      Credit spreads remained relatively unchanged. The Asia ex Japan IG credit spreads tightened slightly -0.4bps to 162.5 whereas the Asia ex Japan HY bond yields remained firm at 6.71. The IG iTraxx AxJ continued to rally to end the day at 72.7bps (-0.7bps).  Top performer in the CDS space was Reliance Industries Ltd which saw spreads tightened -4.59bps.This was followed by FIs which saw a rally as the CDS levels of Oversea-Chinese Banking Corp Ltd, International and Commercial Bank of China Ltd and Bank of China Ltd fell between -1.48bps and -2.49bps. The CDS of DBS Bank Ltd and CapitaLand Ltd, on the other hand, saw CDS levels widen +1.09bps and +1.08bps respectively.

¨      Fitch has assigned BBB-/Sta ratings on Asciano Ltd. The Australian rail-freight industry is among the largest providers of intermodal haulage services with around 65% of market share in Australia. The rating is supported by its stable cash flow contributed by the long term take-or-pay coal haulage contracts with profitable source mines, thus, minimising its exposure to the volatility of the global coal market. Its leverage remains a concern with FFO to adjusted net leverage ratio was as high as 3.6x recorded in FY16. Fitch has also assigned a BBB+ on Shanghai Commercial Bank (SCB). The ratings on the HK-based bank reflected on their contractual loss-absorption loss feature that allows for a permanent write-down in full or in part. SCB's ratings were affirmed in May-17 contributed by solid liquidity position and capitalisation. SCB's recorded a 14% loan growth YoY in 1H17, in line with the sector's growth of 16% recorded in 8M17. SCB's pre-tax profits increased by 40% YoY driven by wider margin and increased income from securities brokerage and wealth management. Fitch has assigned A-/Sta on Wuhan State-Owned Asset Management (WSAM). WSAM rating is reflected on its credit link to Wuhan Municipality and its strategic importance to the government. WSAM's debt/EBITDA recorded in 2016 was below 5x though it has been receiving substantial monetary and non-monetary support from the government in the past. Meanwhile, Moody's has assigned B1/Sta rating on Guirenniao Co. Ltd. Guirenniao is a Chinese sportswear apparel and footwear maker that designs and produces its own-brand footwear, apparel and accessories. The rating was underpinned by its sturdy financial profile. Its EBITDA margins remained stable around 26% and 31% recorded since 2014. Guirenniao has also made few acquisitions between 2016 and 1H 2017, notably Jiezhixing, Mingxieku, spending approximately RMB1.3bn to also obtain the licensed rights for the distribution of the And 1 and Prince brand in China and Korea. Its revenue remained modest compared to other rated global footwear peers at RMB2.3bn recorded in FY16. Following the recent acquisitions, leverage remained a concern as debt/EBITDA was as high as 5.5x recorded in FY16. Moody's expects to decline gradually to around 4.5-5.0x in the next 12-18 months, as measured by lease-adjusted debt/EBITDA reflecting from its new retail businesses and stable profitability for its own-brand sales.

¨      Moody's has downgraded Yanlord Land (HK) Co. Ltd. to Ba3 from Ba2; Central China Real Estate Ltd to B1 from Ba3; Country Garden Holdings Co. Ltd to Ba2 from Ba1; Modern Land China Co. Ltd to B3 from B2; all carrying a stable outlook. The one-notch downgrade was due to the risks involved from the structural and legal subordination as majority of claims of the Group are at the operating subsidiaries, as part of its cross-sector methodology change. Furthermore, these claims have higher priority over claims at the holding company in the event of bankruptcy.

 

 

 

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