FW: RHB FIC Credit Markets Update - 19/1/18

 

 

 

19 January 2018

Credit Markets Update

           

Risk-off as US Spending Deadline Looms; Cagamas Issues MYR450m

MYR Credit Market:

¨      MGS continues to bear steepen. The MGS curve saw yields on the long-end edged higher tracking the global govvie curves. The 3y MGS fell to 3.31% (+0.7bps) and the 10y MGS weakened +6.8bps to 3.91%. The MYR traded largely unchanged as the MYR closed at 3.9550/USD (-0.04%), testing below 3.9500/USD over the trading day. Expect investors' focus to shift towards next week's BNM MPC meeting with rhetoric of the monetary policy statement closely watched.

¨      Govvies trading activity remained strong at MYR2.3bn. The GII space again accounted for a large proportion of trades as the benchmarks 3y, 5y and 10y GII, GII 04/20, GII 04/22 and GII 07/27 recorded trades totalling MYR77.4m, MYR427.5m and MYR380m, to close at 3.52% (+3.3bps), 3.87% (+2.5bps) and 4.18% (+2.6bps). Off the run GII 07/22 again saw increased trade as it crossed the day at 3.93% (+0.3bps) on MYR110m of trades. The benchmark 7y MGS 09/24 saw MYR113m traded +5.1bps higher whereas off benchmark MGS 09/21 saw MYR138m traded while yields rallied -0.6bps to 3.61%

¨      Secondary flows in the corporate bond/sukuk space continued to remain high MYR561m changed hands. Notably BGSM Management Sdn Berhad issued sukuks saw MYR105m of trades recorded. The BGSM MGMT 12/20, BGSM MGMT 21s, BGSM MGMT 22s and BGSM MGMT 25s saw yields rally between -0.3 and -7.4bps to close the day at 4.45%, 4.51%, 4.61% and 4.78%. Public Bank Berhad also saw MYR65m trades among its short dated senior papers as PUBLIC 04/18 and PUBLIC 05/18 saw MYR15m and MYR50m change hands at 3.75% (-0.5bps) and 3.73% (-2.8bps) respectively.

¨      In the primaries, Cagamas Berhad tapped the market for MYR450m AAA bonds in three (3) tranches of 1y, 2y and 3y bonds. The 1y bonds saw MYR230m issued with coupons of 3.73%, MYR100m 2y bonds were issued at 3.95% while the 3y bonds saw MYR120m issued at 4.08%.

¨      Over in ratings, MARC Ratings affirmed the AAAIS/Sta rating on TNB Western Energy Berhad. The rating and outlook are equalised with Tenaga Nasional Berhad's (TNB) corporate credit rating of AAA/Sta, taking into consideration the post-completion rolling guarantee provided by the parent to fund shortfalls in the finance service account (FSA) for the tenure of the sukuk. The rating is also underpinned by the close operational proximity between the entities and TNB's undertaking to maintain full ownership of TNB Western Energy through TNB Manjung Five Sdn Bhd (TNB Manjung Five). Under MARC''s base case projections, TNB Western Energy is forecasted to have minimum and average pre-distribution FSCR with cash of 1.27x and 1.33x respectively during the sukuk tenure. MARC notes that the projected FSCRs are lower than other MARC-rated independent power producers, signalling lower resilience to operational issues. Based on MARC's sensitivity analysis, the power plant can withstand minor breaches in its unplanned outage rate (UOR) or exceeding the PPA heat rate requirement of up to 7% and 1% respectively. The power plant is able to sustain a 10% increase in O&M cost and UOR of 1.8% before breaking even in 2023.

 

APAC USD Credit Market:

¨      Threat of government shutdown and inflation concerns continue to push yields upwards. The USTs saw continued bear steepening as yields edged up across the curve. The 2y UST yields remained at 2.04% while the 10y USTs fell a further +3.5bps to 2.63%, a level not seen since 2016. The long end of the curve weakened further as the 30y UST fell +4.6bps to 2.90%. The USD weakened slightly as the DXY Index fell to 90.50 (-0.05%). Current negotiations over the spending bill has seen the House of Representatives pass a continuing resolution and concerns remain that it may not be passed through the Senate. In addition, the spike in the USTs especially in the long end and the recent strong demand at the TIPS auction have raised inflationary concerns among market watchers. In economic news, housing starts fell more than expected in Dec, -8.2% MoM to an annual rate of 1.19m. Initial jobless claims for the week ending Jan 13 on the other hand beat expectations of 249k at 220k. With the focus on the upcoming funding gap for the federal government threatening to take place over the weekend, focus of investors today would lie squarely on the US legislature.

¨      Singapore Telecommunications, Petroliam Nasional Berhad and South Korea sovereign see CDS increase. The iTraxx AxJ IG credit spreads continued to widen, a further +0.6bps to 61.30. Leading the widening in the CDS space was Singapore Telecommunications Ltd where levels increased close to +2.44bps while Petroliam Nasional Bhd saw CDS edge up near +1.38bps. South Korean sovereign saw CDS levels increase around1.29bps while corporates SK Telecom Co Ltd, KT Corp, and Hyundai Motor Co saw CDS levels widen between 0.85 and 1.38bps. On the flipside, Swire Pacific Ltd saw CDS levels tighten close to -1.22bps while Bank of India saw CDS reduced around -0.56bps.

¨      Moody's upgraded the outlook on Sunac China Holdings Limited to B3/Sta from B3/Neg. The change in rating reflects Sunac's demonstrated ability to deleverage thorugh equity issuances and strong contracted sales growth. In Dec 17, Sunac raised HKD 7.82bn through share placement and reported 140% YoY increase in contracted sales in 2017 to RMB 362bn. Moody's expects revenue/adjusted debt will improve to 40-50% in 12-18 mths from 25% in the 12 mths to Jun 17. Moody's expects Sunac's reported gross profit margin will further improve to 22-24% over the next 12-18 mths from 19.6% 1H 2017 through the recognition of revenues from better quality projects presold. Sunac's cash position is strong. As of Jun 17 its cash balance of RMB 92.4bn covered 133% of its short-term debt.

¨      Fitch downgraded the rating of Inner Mongolia High-Grade Highway Construction and Development Company Ltd (IMHCD) to BBB- with a ratings watch negative from BBB/Sta. The rating actions follow a downgrade of Fitch's internal assessment of the creditworthiness of China's Inner Mongolia Autonomous Region. Fitch's downgrade of its internal assessment of the region's creditworthiness taking into account the limited data robustness and weak internal governance in the autonomous region following the revision of its public budget revenue of 2016. Fitch expects to resolve the ratings watch once the government makes available adequate sets of restated data for evaluation.

 

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