FW: Credit Market Watch: Summary for week ending 2-Feb

 

Credit Market Watch: Summary for week ending 2-Feb

·        MYR Credit:
Ø        MGS yields were down 2-3bps WoW along the 5y10y. The 10y MGS yield was lower by 3bps to 3.90%. Corporate bonds were flat to weaker by 1bp WoW in yields, with little volume (MYR0.7b) given the holiday-shortened week.
Ø        Lafarge Cement Sdn Bhd: Recall the rating was placed on negative outlook in Jun 2017. RAM has lowered Lafarge’s AA2 rating by 2 notches to A1 attributed to the sharp deterioration in financial performance and debt service metrics. Amid tepid demand, overcapacity and fierce price competition in the industry, Lafarge posted a 3rd quarter of consecutive operating losses amounting to MYR175m in 9M17 and FFODC turned negative (2016: 0.59x). RAM expect headwinds to remain in the near term.
Ø        Banking sector. For 2017, loans expanded by 4.1% YoY (2016: 5.3%) after a sharp pick up in December (MYR17.6b vs MYR4.4b in Nov) and if include bond issues, credit growth was 6.2% (2016: 5%). Corporate loans grew slightly faster in December at 2.9% (Nov: 2.3%), and the momentum is expected to continue into 2018, underpinning our banking analyst higher growth forecast of 4.5%. Deposits grew 3.9% YoY (2016: 2.1%) and our banking analyst estimates LDR to be about 90% end-2017, relatively flat YoY. Absolute GILs contracted -0.8 YoY, the first in about 2 years, with notable improvements in residential mortgages and working capital loans. This translated to a lower GIL ratio of 1.53% end-2017 (Nov: 1.61%).
Ø        Relative value: Although Sinar Kamiri 2023 appear to offer value trading 43bps above our fitted AA3/AA- line, its sponsor, Mudajaya Goup Bhd, has weak credit profile which is rated A2/negative by RAM.
·        Asian Credit:
Ø        No respite for bond markets, as UST yields continued its march northward after strong job data from the US last Friday. Nonfarm payroll in January was a solid 200k (consensus: 180k) and unemployment rate steady at 4.1%, but what matters more is the wage growth beat at 2.9% YoY, the fastest since mid-2009. UST curve steepened, with the 10y yield higher by 18bps WoW. On YTD basis the 10y yield has risen 46bps, which is significant given the low volatility setting market had enjoyed in the past ~1 year.
Ø        In Asian credit, yields were generally higher by 10-20bps although spreads tightened slightly, with JACI composite -2bps, JACI IG -1bp and JACI HY -6bps WoW. In sovereign, yield on CHINA’27 rose by 20bps, KOREA, MALAYS, INDON and PHILIP were roughly 5-20bps higher across WoW.
Ø        New issues: 1) Yes Bank (Baa3/-/-) sold USD600m 5y bond at +130bps from +150bps IPT on >1.8x book cover. Allocations were banks 38%, funds 46%, insurance 11% and PB 5%, 2) Poly Real Estate (Baa2/BBB/BBB+) sold USD500m bond at +155bps from +185bkps IPT, 3) Future Land (Ba3/-/BB-) sold USD300m 364-day bond at 4.75% from 5.25% IPT on >5.3x book cover. Allocations were asset managers 66%, banks 24%, PB 7% and insurers 3%. 4) China Logistics Property (B2/-/B) sold USD100m 362-day bond at 9% from 9% IPT.  5) China Cinda (Baa1/A-/A) sold four-tranche deal raising USD2.5b: 5y at +140bps, 7y at +170bps, 10y at +200bps and 30y at 5.10%, overall 20-30bps tight from IPT.
Ø        Rating change: Global Logistic Properties was downgraded to BBB from BBB+ by Fitch, citing higher leverage with net debt (less net working capital) over holding company liquid investment expected to be sharply higher at 70% from 25% in Mar 2017, after providing financing to new shareholders to fund its privatisation. Please see table on next page for a list of rating changes.
·        CDS: In EM Asia, 5y CDS spreads widened most for China by 5bps, while the rest of the countries widened by 1-3bps WoW.



Regards,
 
Winson Phoon, ACA
(65) 6231 5831
winsonphoon@maybank-ke.com.sg
 
Se Tho Mun Yi
(603) 2074 7606
munyi.st@maybank-ib.com

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