FW: RHB FIC Credit Markets Update - 7/12/17

 

 

 

7 December 2017

 

Credit Markets Update

                                               

Exports Grew 18.9% YoY Oct; MGS 11/27 Reopening BTC 1.53x

MYR Credit Market:

¨      Market sees increased trade activities.  The reopening of the MGS 11/27 saw a weaker BTC of 1.53x, despite the smaller auctioned amount of MYR2bn with an additional MYR500m privately placed. This compared to a BTC of 1.68x recorded for a similar reopening in Jul. The auctioned closed at an average yield of 3.946%. The MGS yield curve bear steepened, as the 3y MGS fell +2.5bps to 3.43% while the 10y MGS saw yields edge up +6.3bps to 3.95%. As EM Asia currencies saw a sell down against the USD overnight, the MYR continued to weaken as it fell -0.20%, to 4.0763/USD. The recent upswing in bond yields could see some normalisation especially in light of the upcoming economic data.

¨      Govvies trading fell to just above MYR2.52bn, with strong trade volume surrounding the reopening of the 10y MGS 11/27. MYR1bn changed hands as yields rose +6.3bps on the previous day's close. The 15y benchmark MGS 04/33, still remained active as it recorded trades of MYR121m, closing at 4.44% (-4.2bps) while the 5y benchmark MGS 03/22 saw trades worth MYR99m at 3.60% (+2.5bps). Off-benchmark MGS 07/21 saw increased interest as MYR185m was traded at 3.46% (+1.4bps).

¨      Secondary trading in the corporate bond sees a strong MYR536m recorded.  A large proportion of trades occurred among GG issuers, namely DANAINFRA. The DANAINFRA complex saw a total of MYR185m traded. DANAINFRA 10/28 and DANAINFRA 07/44 saw MYR75m and MYR40m in trades at 4.56% (+2.6bps) and 5.24% (+3.3bps) respectively, while the DANAINFRA 07/29 and DANAINFRA 04/39 rallied -0.1bps and -1.1bps respectively to 4.60% and 5.07%. The AA- rated LDF3 also saw strong activity as a total of MYR92m of trades were recorded for the LDF3 '33s, LDF3 '35s, LDF3 '36s, LDF3 '38s and LDF3 '39s was last traded at 5.20% (+10.5bps), 5.31% (-3.9bps), 5.36% (+6.1bps), 5.48% (+5.1bps) and 5.53% (+4.1bps) respectively. YTL POWER 05/27 recorded MYR42m trades at 4.88%.

¨      Exports grew 18.9% YoY Oct. On economic news, exports in MYR terms grew 18.9% YoY in Oct (+14.8% in Sep) on the back of a rise and commodity and non-E&E shipments. This was also partly contributed by the low base in Oct 16. Imports on the other hand rose 20.9% YoY in Oct (15.2% in Sep) on the back of a rise in the imports of intermediate and consumer goods. This resulted in a widening of the trade balance to MYR10.6bn (MYR80.2bn YTD). Though this data is expected to be indicative of a strong growth performance in 4Q 17, RHB Economics expects normalization in global trade activities (caused by a high base), and a slowdown in China to dampen the country's export growth moving forward. Investors will look forward to the upcoming reserve data to inform on the performance of the market in Nov where the MYS saw a strong rally.

¨      On ratings news, RAM affirms Sabah Development Bank's AA1/Sta ratings. The affirmation is based on the expectation the the Sabah State Government will readily extend extraordinary support if needed, given the bank's developmental role in the state. The bank also enjoys a close relationship with the government, with sizable deposit placements, business referrals and letters of support for SDB's debt securities. The bank does however rely heavily on short-term wholesale funding due to its limited deposit taking, increasing its susceptibility to rollover and refinancing risk. In addition, as a policy bank, the mandate exposes the bank to higher-credit risk with gross impaired loans ratio (6m past due basis) at 10.0% Dec 16. Mitigating this risk, the bank's cautious stance and emphasis on funding state-run projects saw loan book expansion only at 3% in 2016. RAM affirms Golden Asset International Finance Limited (Golden Assets) at A1/Sta. Golden Assets is a funding conduit for Indonesian based Golden Agri-Resources Ltd (GAR). GAR delivered a strong 1H17 production boosted by increased production (+32% YoY) and stronger CPO prices (+10% YoY). Consequently, revenue and OPBDIT saw a rise of +18% and +54% YoY. The group's high debt level still continues to limit upside to the rating at USD2.96bn Jun-17, though the ratings does include expectations of progressive debt reduction substantial falls capex last year, with no major expansion in capex expected in the next few years. GAR's debt level is projected to ease to USD2.5bn over the next 1-2years. FFO debt coverage (after adjusting for readily available marketable inventories and refundable taxes) annualized for 1H17 is 0.23x (0.18x Dec-16) and is expected to hover around 0.15-0.20x. MARC affirmed ratings of AAAIS(bg) and AAAIS(fg) on Ranhill Capital Sdn Bhd with Sta outlooks. Its key subsidiaries are SAJ Ranhill Sdn Bhd (SAJ), which undertakes water operations in Johor, and Ranhill Powertron Sdn Bhd (RPI) and Ranhill Powertron II Sdn Bhd (RPII), the latter two of which are independent power producers in Sabah. The residual cash flows from SAJ and to a lesser extent RPI and RPII remain the principal sources of repayment for the notes issued under the facilities. For 1H2017, Ranhill recorded flat consolidated revenue and pre-tax profit of MYR719.9m and MYR94.8m respectively. Total group borrowings declined to MYR1.15bn from MYR1.25bn at 2016. Group DE improved significantly to 1.5x Jun-17 from 4.3x Dec-15 on an expanded capital base, the full redemption of outstanding RM200 million bonds and the partial redemption of RM100 million under RCSB's rated sukuk. Further to the improvement in its leverage, MARC highlights that the total outstanding RM608.1 million under Tranche 1 and Tranche 2 has been reclassified under non-current liabilities following the resolution of a covenant arrangement with the guarantors of the tranches. At the holding company level, Ranhill received RM114.9 million in dividends in FY2016, which was sufficient to meet its financial obligations for the year. Sukukholders are insulated from downside risk related to the credit profile of RCSB by the guarantees provided by Maybank Islamic and Danajamin.

APAC USD Credit Market:

¨      USTs resumed rallying on dampening risk sentiment. The passing of short term spending bill remained a key watch as President Trump threatens a US government shut-down should the Congress fail to reach an amicable funding agreement by Friday evening. USTs continued to rally which saw yields declining across the curve with the biggest gains seen in the belly of the curve. The 2y and 5y USTs pared losses, as the 2y UST yields edged lower at 1.81% (-1.2bps) while the 5y USTs saw yields falling to settle at 2.13% (-1.7bps). Meanwhile, the 10y continued its rally, closing the day stronger at 2.34% (-1.2bps). The longer-dated 30y UST, on the other hand, halted its strong rally over the week remaining firm at 2.73%. The DXY Index climbed +0.25% higher to close at 93.6. Over in economic news, the ADP National Employment report on private-sector hiring showed businesses created 190k jobs in November which was in line with expectations. This, however, was a reduction from the 250k new jobs posted in Oct.

¨      HY spreads outperformed IG credit spreads. The Asia ex Japan IG credit spreads increased slightly to 162.8bps (+0.4bps) whereas the Asia ex Japan HY bond yields fell to 6.69% (-2.0bps) on the back of USTs rallying overnight. The IG iTraxx AxJ also saw a slight increase to close a tad higher at 73.2bps (+0.3bps). Top performer in the CDS space was sovereign as Philippines saw spreads tighten about -0.7bps. Meanwhile, leading the widening in the CDS space for the day was Reliance Industries Ltd which saw levels increase approximately +5.4bps. This was followed by Fis Bank of India and The EXIM Bank of China which saw spreads increase around +3bps and +2.3bps respectively. Others include Samsung Electronics Co. Ltd and GS Galtex Corp with levels rising about +2.3bps and +2.2bps respectively.

¨      Over in ratings, Moody's has upgraded Land Bank of The Philippines from Baa2/Sta to Baa1/Sta. This upgrade was based on expectation of support from the Government of Philippines in the event of financial distress. The rating is now in line with the sovereign rating of the Philippines. The rating was also partly driven by few aspects such as sizeable market shares of domestic deposits and loan and unique public policy role of financing the country's priority sectors which include microenterprises and SMEs. The bank has maintained a healthy financial profile over the past three years supported by solid asset quality as well as strong capital and liquidity buffers that are on par with other competitors in the Philippines. This was also supported by favourable operating environment for banks in the Philippines of which funding profiles are heavily backed by deposits and minimal dependence on short-term wholesale funding.

 

 

 

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