FW: RHB FIC Credit Markets Update - 13/4/18

 

 

13 April 2018

Credit Markets Update

           

USTs Fall As Syria Concerns Abate; 20y GII Reopening BTC 2.12x.

MYR Credit Market:

¨      20y GII 08/37 reopened, garnered a healthy BTC of 2.1x; MGS yield curve steepen. The 20y GII 08/37 reopening yesterday saw a strong demand with BTC 2.12x (vs 2.15 in Oct 17). The auction closed with an average yield of 4.80%. The MGS yield curve steepen as global bond market rallied. Treasuries saw yields declining in the previous trading session especially at the longer end of the curve amid the release of FOMC March’s minutes and the political tension between Russia and the US which led to flight-to-safety. The 10y MGS saw yield rose to reach 4.00% mark once again since Jan 18 (+3.4bps) while 3y MGS inched higher +3.3bps to end at 3.50%. At the belly of the curve, the 5y MGS saw yield rose +1.8bps to close at 3.59% while 7y MGS remained relatively unchanged at 3.87% (+0.5bps). The MYR remained unchanged to close at 3.8765/USD (-0.05%).

¨      Govvies trading volume surged to MYR3.2bn from MYR1.2bn the day before. Following its reopening, the 20y benchmark GII 08/37 was the most traded after MYR680m changed hands to close +6.8bps higher at 4.82%. The 10y MGS 11/27 and 5y MGS 04/22 both inched up +3.4bps and +0.7bps to end at 4.00% and 3.83% respectively. These benchmarks each recorded MYR362m and MYR320m trades. MYR500m of total trades came from GII 04/20 which closed flat at 3.60% (+0.1bps), and another MYR250m of trades from GII 07/27 which saw yield rose +21.9bps to 4.19%.

¨      Trading activities in corporate bonds/sukuks were quiet with trading volume of just under MYR179m, with over 50% of trades came from AAA space. Top trades for the day include short-dated CAGAMAS 10/18 with MYR40m trades done which saw yield spike up +36.8bps to close at 3.75%. PLUS 01/26 and PLUS 01/25 recorded a combined MYR60m trades ended the trading session at 4.52% (+0.1bps) and 4.48% (-2.2bps) respectively. BEWG 07/21 remained unchanged at 4.90% (+0.1bps) after seeing just MYR20m changed hands.

 

 

APAC USD Credit Market:

¨      USTs fall led by the long end. USTs pared back gains of the previous day, as the latest message from the White House was less hawkish on the matter of Syria. In addition, the US President also expressed his view that tariffs between US and China may not escalate with positive negotiations taking place, and also expressed interest in joining the Trans-Pacific Partnership once more. The UST curve bear flattened on the return of risk appetite as the 2y UST saw yields rise +4.1bps to 2.35% while the 10y USTs ended at 2.84% (+5.5bps). The 30y US yields pushed up +4.8bps to 3.04%. This occurred while the 10y and 30y UST auctions closed with weaker demands especially in light of the large issuances of Saudi Arabian and Qatari sovereign bonds over the past two (2) days. Meanwhile, geopolitics still continues to effect other asset classes, as oil prices remained at multi-year highs at USD72/bbl. Instability in the region remains a concern, as the US President continues to threaten Syria, and as the latest reports in Saudi Arabia is of an intercepted missile headed from Riyadh. This occurs despite the US EIA upward revision in oil production for 2019.

¨      The iTraxx AxJ IG credit tightened to close at 76.44bps (-0.32bps). This occurred despite the strong widening in CDS spreads of HK corporates PCCW-HKT Telephone Ltd, Swire Pacific Ltd, Sun Hung Kai Properties Ltd, and Hongkong Land Co Ltd of between +4.0bps and +8.0bps and the spreads of Singaporean issuers subdebt of Oversea-Chinese Banking Corp Ltd, subdebt of United Overseas Bank Ltd, subdebt of DBS Bank Ltd, CapitaLand Ltd and Singapore Telecommunications Ltd which saw CDS spreads edge up between +1.4bps and +7.2bps. Financial names such as Export-Import Bank of China, ICICI Bank Ltd, and China Development Bank all saw CDS spreads fall aound -1.5bps, -1.0bp and -0.8bps respectively. Reliance Industries Ltd and GS Caltex Corp, on the other hand saw CDS spreads edge down close to -0.9bps and -0.7bps each. Among sovereign names, the CDS of Indonesia and China saw CDS levels reduce approximately -0.5bps and -0.4bps respectively.

¨      Moody’s upgraded Anton Oilfield Services Group to B2/Pos from B3/Pos, underpinned by the rating agency’s expectation of sustainable better-than-expected credit profile over the next 12-18 mnths, driven by a favorable operating condition, improved cost structure and a more diversified customer mix. Anton recorded a notable improvement in its leverage level as reflected by adjusted debt/EBITDA of 5.0x at end Dec 17, down from 9.7x a year before. Excluding remaining bonds of USD71m that the company redeemed in Jan 18, its adjusted debt/EBITDA would have been lower at 4.3x at end Dec 17. This improvement was on the back of improved profitability from strong revenue growth which was supported by overseas markets, enhanced operating cost structure and better working capital management. Another key rating factor is Anton’s established track record in business geographical diversification which partly mitigates the volatility in oil prices. Moderating the rating is Anton’s weakened liquidity position which however, is moderated by the company’s track record of short-term debt refinancing as evidenced during the weak oil price environment in 2015-2016 as well as good access to capital markets. Additionally, the rating is also constraint by its exposure to volatility in oil prices, risk related to overseas expansion, the company’s small scale and high customer concentration as well as weak operating cash flow. The positive outlook was maintained as Moody’s expects Anton to sustain its improved credit profile over the next 12-18 mnths, with a possible further rating upgrade.

¨      Moody’s upgraded Yanzhou Coal Mining Company Limited to Ba3/Sta from B1/Pos and concurrently upgraded rating for bonds issued by Yancoal International Resources Development Co. Limited and bonds under its guarantee to Ba3/Sta from B1/Pos. The rating upgrade reflects Moody’s expectation that the company will sustain its improved credit profile over the next 12-18 mnths. Yanzhou Coal recorded significant increase in revenue and adjusted EBITDA driven by the increase in average selling price of the company’s produced coal and also higher production volume. The rating agency expects the company’s production volume to increase to around 100m tons in 2018 from 79.9m tons in 2017 considering the full-year contribution from the company’s newly acquired Coal & Allied mines as well as production ramp-up in its new mines.

¨      Moody’s upgrades the rating on Times China Holdings Limited to Ba3/Sta from B1/Sta. The upgrade reflects Moody’s expectations that Times China’s credit metrics will improve over the next 12-18 mths. Times China reported revenue and gross profit growth by 43% and 52% YoY respectively for 2017. During this period, gross margins improved to 28% (2016: 26%). Moody’s expects presales and revenue to grow by 26% and 31% in 2018, while maintaining gross margins at 27%. In addition, Moody’s expects revenue/adjusted debt and EBIT/interest to end 2018 at 75% and 3.4x. This is based on the 16.8m land bank expected to support 3-5yrs of development, expectations Times China will maintain spending on land relative to its annual presales, and expectations its investments will still result in lower debt requirements.

¨      Fitch upgrades Sinochem Hong Kong Group Co Ltd (Sinochem HK) to A/Sta from A-/Sta. Therefore it also upgraded issuances by Sinochem Offshore Capital Company Limited and guaranteed by Sinochem HK to A/Sta from A-/Sta and issuances by Sinochem Global Capital Co Ltd and guaranteed by Sinochem HK to BBB+/Sta from BBB/Sta. The change in ratings follows Fitch’s internal assessment of the parent of Sinochem HK, Sinochem Corporation, under its Government-Related Entitites Rating Criteria. Based on this assessment, Sincochem Corporation is rated based on the ratings of the Chinese sovereign as it is fully owned by China’s central State-owned Asset Supervision and Administration Commission. Sinochem HK in turn is assessed based on the Parent and Subsidiary Rating Linkage by Fitch due to the strong legal, operational and strategic ties between them.

¨      Moody’s upgraded Jingrui Holdings Limited to B2/Sta form B3/Sta. The upgrade reflects expectations Jingrui property sales execution and liquidity can be sustained over the next 12-18 mths. Moody’s expects Jingrui will moderately grow contracted sales by 10-15% to RMB20-21bn in 2018 (2017:RMB18.4bn). In addition, Moody’s expects gross margin to improve to 22-24% over the next 12-18 mths (2017:16.1%). Moody’s also expects Jingrui’s liquidity position to be adequate, reflected in cash balance of RMB9.5bn Dec 17, able to cover 2.0x of short term debt, and is adequate to repay current maturities and committed land premiums.

¨      Fitch upgrades PT Bank Central Asia Tbk to BBB/Sta from BBB-/Sta. This follows the upgrade of the sovereign of Indonesia, on the fiscal and monetary policy seen focused around persevering the macroeconomic stability and building financial buffers.