FW: RHB FIC Credit Markets Update - 11/1/18

 

 

 

11 January 2018

Credit Markets Update

           

MYR Rebounded Ahead of IP Data; Trading Skewed Towards Longer Dated Govvies.

MYR Credit Market:

¨      MYR remained resilient versus USD; Benchmark MGS pared gains. The 3y MGS saw yields move a tad higher of about +0.7bps to end at 3.31% while the 10y MGS held at 3.87%. The 5y MGS yields rose +4.1bps higher to 3.56%. The 30y MGS, on the other hand, stayed unchanged at 4.85% overnight. The MYR remained well supported after climbing back to the 4.0000/USD level yesterday on the back of improving Brent crude oil prices, inching closer to the USD70/bbl mark as it closed at USD69.2/bbl (+0.55%). The MYR touched below 4.0000 versus the USD this morning at time of writing ahead of Industrial Production (IP) and Manufacturing Sales that will be released later today. IP is estimated to increase to 4.6% from 3.4% recorded in the previous month.

¨      Govvie trades volume dropped to MYR2.8bn; Muted corporate bonds trading activities with a mere MYR183m transacted. Longer tenure securities remained well demanded. Highest trade was the benchmark 10y GII 07/27 with total transactions surging to MYR554m, closing +3.4bps higher at 4.19%.This was mostly followed by benchmarks MGS which saw the 10y, 15y and 20y continued to trade strongly with volumes recorded at MYR123m, MYR303m and  MYR143m respectively. Yields were seen rising as the respective security last dealt at 3.87% (+0.6bps), 4.40% (+1.4bps) and 4.60% (+1.6bps). The benchmark 7y MGS 09/24 saw interest pick up with MYR207 changed hands, closing +1.7bps higher at 3.84%. Over in corporate segment, AA rated papers accounted approximately 71% of the total trades. Top trades were SEB 8/25 dealt at 4.67% (+2bps) while STMSB 6/19, trading for the first time, transacted at 4.50% as both recorded MYR25m in volume each. Other notable trades include KEVSB 7/18 and 7/20 with combined trades of MYR20m last settled at 3.94% (-33.2bps) and 4.33% (-11.1bps) respectively.

¨      MARC Rating has affirmed its AA-IS/Sta rating on TSH Sukuk Ijarah Sdn Bhd, and TSH Sukuk Murabahah Sdn Bhd Bhd. These are funding vehicles set up by their parent TSH Resources Berhad and ratings incorporate TSH's established long track record in oil palm cultivation, its improved cash flow generation and healthy tree maturity profile. As a predominantly upstream plantation group, TSH benefited from CPO's improved price environment. Consolidated revenue and operating rose 28% YoY to MYR803.6m and 78.4% YoY to MYR151.8m respectively 9M17. MARC expects TSH's cash flow generation to increase over the intermediate term, led by higher yields in the absence of any adverse weather events and the improving maturity profile of the group's palm trees. CFO increased to MYR216.5m 9M17 (MYR88m 9M16), while FCF turned positive to MYR57m. TSH's gearing reduced marginally to 0.86x 9M17, with total group borrowings at MYR1.4bn (MYR1.5 bn 2016). MARC Rating has affirmed its AAAIS/Sta rating on TSH Sukuk Musyarakah Sdn. This is based on the unconditional and irrevocable financial guarantee insurance provided by Danajamin Nasional Berhad. RAM Rating affirmed the AAA/Sta rating of Silver Sparrow Berhad. The enhanced rating reflects irrevocable and unconditional guarantees extended by Danajamin Nasional Berhad, Malayan Banking Berhad and OCBC Bank (Malaysia) Berhad on a proportionate basis. Aseana Properties Limited, via an unconditional and irrevocable corporate guarantee, undertakes to ensure that its wholly owned subsidiary and funding vehicle, Silver Sparrow, meets its obligations under the guarantee facilities. Aseana's CFO was negative 1H17, while gearing ratio was 0.73x Jun 17(0.68x Dec 16). While the Group's cash and bank balances stood at USD18m against USD52m of short-term debt as at Jun 17, this liquidity gap is somewhat alleviated by that its amount owing to related companies (USD13m) are not expected to be repaid in the near term.

APAC USD Credit Market:

¨      US 10y bond auction saw decent demand. The USTs extended selloffs from the previous day following unofficial reports that China was planning to reduce or halt US bonds purchases possibly due to the rising trade tensions between China and US. The USTs, however, regained traction after strong 10y note auction of USD12bn, garnering a healthy BTC-ratio of 2.69x, the highest since Jun-16. The 2y UST unmoved at 1.97% while the 10y UST saw yields settling slightly higher at 2.56% (+0.38bps). The USD weakened as the DXY fell to 92.3, closing -0.21% lower overnight. Elsewhere, all eyes will be on the widely anticipated US CPI data to be released tomorrow. Inflation for the month of Dec-17 YoY is expected to slow from 2.2% to 2.1%.

¨      South Korea players led the rally in AxJ IG CDS. The iTraxx AxJ IG credit spreads reversed after falling to just below 60bps levels in the previous day, settling at 60.5bps (+0.6bps). Over in CDS space, South Korea entities resumed to lead the tightening with Fis Kookmin Bank rallied the most as spreads narrowed approximately -2.7bps while Industrial Bank of Korea, Korea Development Bank, Export-Import Bank of Korea and Woori Bank shed between -1.3bps and -2.3bps. Corporates GS Caltex Corp and SK Telecom Co. Ltd. saw CDS levels declining nearly -2.6bps and -2.4bps respectively. Other notable players include KT Corp, POSCO and Korea Electric Power Corp with levels plummeting between -1.3bps and -2.2bps.  Leading the widening was PCCW-HKT Telephone Ltd. with spreads rising about +3.4bps while Swire Pacific Ltd saw levels climbing close to +2.5bps. Meanwhile, sovereigns Indonesia, Philippines and China recorded increase in spreads between +0.9bps and +1.2bps which was followed by Malaysia of approximately +0.6bps.

¨      Over in rating changes, Fitch has assigned Power Grid Corporation of India (Powergrid) a BBB-/Sta rating. The rating on India's largest power generator benefitted from the regulatory nature of more than 95% of its revenue as Fitch highlighted the absence of off-take risk as long as it fulfills regulatory operational benchmarks. Given its dominant position in the market, owning and operating about 85% of India's inter-regional and inter-state electricity transmission network assets. Powergrid commissioned INR320bn of projects in FY17 and plans total capex of about INR250bn per year over the next three years. Powergrid's credit metrics has shown decent improvement which saw net debt/EBITDA declining from 6x sustained over the past few years to 5x as at end FY17. Fitch has forecasted leverage to reduce further to about 4x by FY20 with assets under construction are commissioned. Powergrid has also kept net debt/total fixed assets stable of around 65% over the past few years. Powergrid also benefits from letters of credit for 105% of estimated average monthly revenue and tripartite agreements between the central government, central bank and state governments to ensure timely payments.

 

 

 

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