Dear all,
Credit Market Watch: Summary for week ending 30-Mar
· MYR Credit:
Ø MGS yield curve steepened slightly with the 2y MGS yield down 3bps, while the 10y MGS yield was up 2bps WoW. Besides quasi yields widening about 1bp WoW, corporate bond yields elsewhere were unchanged. Active trading persisted as volume totalled MYR3.8b for the week, with improved interest for longer tenor bonds.
Ø LPPSA sold IMTNs to raise a total of MYR3b. Of that, MYR1.5b in 15y IMTNs were privately placed, while another MYR1.5b were sold via book building in 5y, 7y and 10y tenor IMTNs at final yields of 4.10%/MGS+46bps, 4.32%/MGS+49bps and 4.54%/MGS+57bps respectively, which were tighter than secondary GG levels.
Ø Macro: BNM revised up its 2018 growth forecast to 5.5-6.0% (previously 5.0-5.5%) on upbeat outlooks for private consumption and private investment. The central bank continued to highlight the oversupply of commercial properties domestically, and external downside risks to growth are rise in trade protectionism, adverse response to tightening monetary policy in DMs and increase market volatility. BNM also trimmed official inflation forecast to 2.0-3.0% (previously 2.5-3.5%), in line with our view of inflation moderating which supports a stay of OPR view for the remaining year.
Ø Malaysia Marine and Heavy Engineering Holdings Bhd (MHB): Outlook on its AA- rating revised to stable by MARC premised on growing order book and better O&G industry outlook which lowers the likelihood of further asset impairment that had pressured MHB's profitability metrics. MHB recorded MYR11m pretax profit (2016: -MYR135m) and MYR70m CFO for 2017 (2016: -MYR107m). Order book stood at MYR1.3b end-2017 (2016: MYR629m), primarily comprising PETRONAS contracts.
Ø Relative value: Jati Cakerawala 2021 was dealt at 5.20%, which is 54bps wider than our fitted AA3/AA- line. This likely reflects credit concerns given its negative outlook by RAM over the company’s plan to maintain large dividend payouts which increases the risk of its minimum sub-FSCR falling below 1.5x level in as early as 2019, RAM estimates.
· Asian Credit:
Ø The UST yield curve flattened with the 2y yield up 1bp WoW to 2.27% and the 10y yield was down 7bps WoW to 2.74%. Treasury yields fell amid the technology stock rout which pushed investors to safe haven assets.
Ø Asian USD credit spreads generally tighter with JACI composite -3bps, JACI HY -16bps, while JACI IG rose +2bps WoW. Sovereign bonds were constructive with INDON, PHILIP, MALAYS, KOREA curves all tighter by 2-9bps WoW and CHINA’27 yield declined 5bps WoW.
Ø Rating changes: 1) Agile’s rating upgraded to BB from BB- by S&P, citing ability of the company to maintain debt/EBITDA <4x over the next two years on the back of significantly wider margins; 2) Country Garden’s rating also raised by S&P to BB+ from BB attributed to its significantly enhanced scale and market position, now among China’s top 3 developers, and improved leverage due to margin recovery and top line growth moderating capex; 3) Pelindo III’s rating was lowered to BB+ from BBB- by S&P, citing potential rise in leverage to finance increased capex spending following the government’s aim to improve sea infrastructure before the 2019 elections. Ports remain underutilized and poses risk for return on investments.
· CDS: EM Asia 5y CDS spreads were largely tighter with China, Indonesia and Philippines -3bps each and Malaysia -1bp WoW.
Regards,
Winson Phoon, ACA
(65) 6231 5831
Se Tho Mun Yi
(603) 2074 7606
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