FW: RHB FIC Credit Markets Update - 3/1/18

 

 

3 January 2018

Credit Markets Update

           

All Eyes on 20-year MGS Auction This Week (First Auction in 2018), MYR Well Supported

MYR Credit Market:

¨      Slow trading to start the year; USD weakness continues to support the MYR. The USD weakness continued to support the strength of the currencies of EM Asia, though the MYR continued to be one of the better performers in the region. The MYR continued to rally to 4.0195/USD (+0.60%). On the back of weak trading, the MGS curve continues to rally, especially in the belly of the curve. The first govvie auction in 2018 was announced with MYR2bn of the 20y MGS 04/37 planned to be issued on 05^th Jan with an additional MYR1bn to be privately placed.

¨      Trading activities remained slow, with volume expected to pick up gradually. Govvie trading volume slowed down as MYR1.1bn recorded. Govvie trading was largely concentrated among the GIIs where the benchmarks GII 04/22, GII 08/24, GII 07/27 and GII 06/33 saw yields mixed, +0.7bps, -2.6bps, -3.8bps and unchanged respectively on trades totalling MYR319m, MYR60m, MYR100m and MYR110m. The short dated MGS 07/19 saw MYR157m change hands at 3.11% (+0.7bps). Corporates bonds/sukuk only saw MYR119m traded. This was mainly part of the MYR100m selldown of WCT 5.55% 01/25 due to be issued tomorrow.

¨      Over in economic news, the Nikkei Malaysia Manufacturing PMI fell to 49.9 Dec from 52.0 in Nov. The goods production sector was reported to show weak demand for the month from the domestic markets, though international demand for Malaysian goods continued to improve.

¨      Over in ratings, RAM Rating raised the outlook on Bumitama Agri Ltd to AA3/Pos from AA3/Sta. This upgrade reflects the improvement of the credit metrics of Bumitama above the expectations of RAM Ratings especially led by the group’s fresh fruit bunch (FFB) production recovery following the lagged effects of El Nino and higher CPO process. Bumitama’s revenue and OPBDIT rose 39% and 51% YoY for 9M 17. In addition, Bumitama has pared down its debt by about UDR800bn since Dec 15 to IDR4.73trn Sep 17. This has resulted in annualised debt-to-OPBDIT of 2.05x (Dec 2016: 2.47x), gearing of 0.59x Sep 17 (0.65x Dec 16) and FFO debt coverage of 0.41x 9M 17 (0.33x Dec 16, 0.29x Dec 2015). RAM now expects the debt-to-OPBDIT to remain below 3.0x and FFO debt coverage to remain above 0.30x, warranting an upgrade if sustained at these levels. Bumitama’s mature planted area totalled 156,521 ha with weighted average tree age of 8.3y. FFB production is expected to register annual growth of 13-36%, which is expected to help alleviate some of the substantial FFB purchases (50-60% of CPO production costs) due to the young age of Bumitama’s estates.

¨      RAM reaffirmed the ratings of BGSM Management Sdn Bhd at AA3/Sta. The reaffirmation of the issue rating is premised on the well-established market position of its sole subsidiary, Maxis Berhad (Maxis), in the Malaysian mobile market also taking into account the subordination of its bonds to Maxis’ considerable debt. Maxis posted MYR6.5bn in revenue and maintained adj OPBDIT margin at 53.9% in 9M 17. BGSM Management’s FFO debt coverage stood at 0.28x 2016 on the back of better than expected financial performance. Potential further debt-funded capex, given the marginally lower spectrum holdings of Maxis and continued competition, as well as the possibility of a reallocation or tender for other spectrums in coming years, might exert pressure on BGSM Management’s credit profile.

APAC USD Credit Market:

¨      US Treasuries bear steepened into the first trading day of the 2018. The financial markets reopened yesterday after the New Year Day’s holiday with the USTs, along with European government papers, recorded a fall as yields were seen rising across the curve. Comments from ECB officials, Benoit Coeure and Ewald Nowotny raised the possibility that the current massive EUR2.55trn bond buying programme may not be extended beyond Sep-18 on the back of sturdy growth in the Eurozone. Renewed optimism and risk appetite among market participants after Wall Street recorded the strongest performance in four (4) years in addition to the positive economic data releases where Markit US Manufacturing PMI for the month of Dec17 came in slightly better with a reading of 55.1 compared to the forecasted figure of 55 continued to drag USTs lower. The 2y UST recorded a fall as yields rose to 1.92% (+3.61bps) while the 10y UST saw yields climb to 2.46% (+2.41bps). The USD continued to slide lower as the DXY Index closed at 91.9 (-0.40%). Looking ahead, minutes for FOMC meeting on 13^th Dec17 will be held tomorrow.

¨      South Korea’s corporates led the tightening in AxJ IG CDS. The iTraxx AxJ IG spreads unchanged as levels remained firm at 67.1. Over in CDS space, South Korea corporate Hyundai Motor Co led the tightening for the day as levels compressed approximately -4.8bps while Hong Kong entity PCCW-HKT Telephone Ltd also saw a similar fall in levels of nearly -4.8bps. This was followed by Bank of India with spreads tightening about -4.5bps. Meanwhile, spreads for sovereign’s Philippines reversed slightly from the previous day widening as levels fell -2.4bps in estimation. Sovereign South Korea continued to rally as spreads declined about -1.9bps. Leading the widening, on the other hand, were mostly entities from India. Fis ICICI Bank Ltd saw spreads rising close to +2.4bps while CDS levels of State Bank of India/London increased about +1.1bps. India’s corporate Reliance Industries Ltd saw spreads edging about +1.7bps higher overnight. KT Corp was seen paring gains as levels widened about +2.1bps.

 

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