FW: RHB FIC Credit Markets Update - 22/5/18

 

 

Credit Markets Update

           

SPRINT Outlook Upgraded to A+/Sta; Focus on FX Reserves Release Today.

MYR Credit Market:

¨      Focus on FX Reserve release today. As the UST yields continued to bear steepen, the MGS yields moved in tandem withthe 3y MGS lifted to 3.78% (+2.8bps) while the 10y MGS traded 4.21% (+3.6bps). The 30y MGS remained unchanged at 4.91%. The USD was traded mixed against EM Asia currencies. The MYR traded -0.18% weaker vs the greenback to close the day at 3.9795/USD. The reopening of the MGS 06/28, to be the new 10y MGS benchmark has been earmarked for 24^th May. The expected auction amount is MYR3.5bn. Investors’ focus are expected on the upcoming FX Reserves for the 15^th May to be released later today.

¨      Trading in govvies recorded a more subdued MYR2.2bn. 42% of the trades occurred in the short end where maturities of 2018-2020 made up 42% of total trades for the day. Among benchmark issuances, only GII 08/25 was actively traded with MYR160m trades while MGS 11/27 saw MYR68m trades, both   closed the day at 4.22% (+1.6bps) and 4.21% (+3.6bps). Other notable trades include off benchmark MGS 04/33 and MGS 09/21, which saw MYR150m and MYR287m change hands at 4.78% (+1bps) and 3.89% (+2.2bps).

¨      Corporate trades fell to record only MY172m trades. AAA issuances, PLUS 22s and SURIA KLCC 24s, both on trades of MYR20m and MYR30m each, changed hands at 4.38% (+12.2bps) and 4.57% (+12.2bps). Short dated power producer issuances MALAKOFF POW 18s and MALAKOFF POW 19s, both saw MYR40m and MYR20m respectively traded weaker at 4.35% (+13.3bps) and 4.53% (+16.3bps). On the longer end, JEP 06/25 and JEP 12/29 saw yields pick up +19.1bps and +7.9bps to trade at 4.90% 5.08% respectively.

¨      MARC revised upwards the outlook on Sistem Penyuraian Trafik KL Barat Sdn Bhd’s (SPRINT) to A+IS/Sta from A+IS/Neg. SPRINT is the toll concessionaire of the 26.5km interlinked SPRINT highway comprising Damansara Link, Kerinchi Link and Penchala Link in Kuala Lumpur. In 10M17, Damansara Link grew by 6.9% YoY (-8.7% 10M16) while Kerinchi Link and Penchala Link continued to decline albeit at a slower pace to 6.2% and 4.1% (-10.0% and -12.8% 10M16).  Penchala Link and Kerinchi Link continued to be the largest revenue contributor to SPRINT in light of the highways’ higher toll rates compared to Damansara Link (FY17 tolling revenue contribution of 20%). The lower government compensation, coupled with an increase in amortisation charges, resulted in a pre-tax loss of MYR8.3m FY17. CFO improved to MYR219.8m on the back of better working capital management. SPRINT’s DE and facility DE ratios stood at 4.60x and 1.34x. MARC’s expectations that SPRINT’s financial metrics will remain commensurate with its current rating, supported by sufficient cash flow generation despite its traffic performance trailing projections. The rating could be revised should changes in government policy impact the toll road concession.

¨      RAM Ratings has reaffirmed Genting Berhad at AAA/Sta. Concurrently it reaffirmed the issuances of Genting Capital Berhad and GB Services Berhad backed by full, unconditional and irrevocable corporate guarantees from Genting at AAA/Sta. Genting’s OPBDIT increased by 10.8% YoY 17 to MYR5.7bn (FY 16: MYR5.1bn), mainly driven by the better showing of its L&H business in Singapore as well as power and plantation divisions. Over 2018-2020, RAM expects Genting to incur capex of MYR26bn and to pursue higher dividend payments for the next few years.

APAC USD Credit Market:

¨      Treasuries’ yields continued trending upward as trade tension recede. The USTs were pushed higher as concern on US-China trade war eased after Treasury Secretary Steven Mnuchin said over the weekend that the US would delay imposing tariffs on Chinese goods and put the trade war on hold. Treasury Secretary, subsequently on a statement released yesterday insisted that administration officials were on the same page to supersede earlier statement made by the US trade representative Robert Lighthizer who claimed that the US may still implement tariffs. The negotiation ended with China pledged to narrow the US trade deficit. The easing of trade tension fueled a risk on with a selloff in the front end of the yield curve. The 2y UST inched higher +1.89bps to close at 2.57% while 5y, 10y and 30y USTs all saw yields increased marginally between 0.3bps and 0.7bps to end at 2.90%, 3.06% and 3.20% respectively. However, this was partly moderated by the concerns over political situation in Italy as two anti-establishment parties moved closer to form new coalition government, weighing on Italian bonds as well as the Euro. The USD as seen in DXY remained unchanged at 93.68 (+0.04%) overnight. Over in economics, the Chicago Federal Reserve’s national activity index came in 0.34 Apr compared to 0.32 in prior month. The US economic data scheduled for release today include Markit US PMI for manufacturing, services and composite as well as new home sales.

¨      The iTraxx AxJ credit spread rallied -0.3bps to 75.26bps. Leading the rally Malaysian NOC Petroliam Nasional Bhd which saw spreads lowered about -1.02bps, trailed by Industrial Bank of Korea, CNOOC Ltd and Bank of China Ltd where all CDS level pushed down -0.57bps, -0.56bps and -0.35bps respectively. In the sovereign front, the sovereign of South Korea and China both saw spreads eased down between -0.1bps and -0.25bps. Meanwhile, on the other hand, the sovereign of Indonesia, Malaysia and Thailand all saw spreads pulled in the opposite direction between +0.06bps and +0.78bps. Corporates Telekom Malaysia Bhd saw spread higher approximately +0.47bps while Singapore Telecommunications Ltd and China Development Bank both saw spreads pushed up slightly about +0.3bps and +0.28bps respectively.

¨      Over in ratings, Moody’s upgrades Studio City Finance Limited to B1/Sta from B2/Sta. The rating upgrade reflects the company’s improving business profile, following its successful ramp-up and the recovery in Macao’s overall gross gaming revenue (GGR) since 3Q16 led to better earnings and credit metrics. The rating also includes likelihood of extraordinary support from its parent Melco Resort & Entertainment Limited given its importance to the parent. Studio City adjusted EBITDA grew 174% YoY to USD276m and the rating agency expects it to grow further to around USD315-330m in the next 12-18 mths on the back of Macao’s steady GGR growth which grew 20.5% YoY in 1Q18 and better cost efficiency. The company’s cash balances of USD351m and adjusted operating cash flow projected at around USD180-200m is deemed sufficient to fully cover its capital spending in the next 12-18 mths. Moody’s also expects Studio City to continue to improve its operation and that its credit metrics will remain stable over the course of its phase two construction while downgrade stress would emerge if its debt/EBITDA exceeds 7.5x-8.0x and EBITDA/interest coverage falls below 1.8x on a sustained basis. Moody’s upgrades Melco Resorts Finance Limited to Ba2/Sta from Ba3/Sta. The rating upgrade reflects Melco Resorts Finance’s sound business operations and high quality assets, which have supported its robust financial profile and strong liquidity, as well as improved credit profile of its parent Melco Resorts Entertainment. The opening of its new hotel will support the company to steadily increase its earnings in 2018 and lowering capex in next 12-18 mths. The company’s cash balance stood at USD837m at end-2017 and projected annual operating cash flow of around USD600bn-650bn in next 12 mths, sufficient to cover its short term debt of USD44m, capex and dividend payouts in next 12 mths. 

¨      Fitch downgraded Shandong SNTON Group Co Ltd to BB/Sta from BB+/Sta reflecting the rise in Snton’s leverage in 2017 and the lack of clarity about whether this can be reversed in the medium-term. FFO adjusted net leverage rose 3.9% by end-2017 from 3.4x the year before. Despite increased EBITDA by 8% YoY to CNY3.5bn, Snton incurred negative FCF of more than CNY2bn and increased total adjusted debt to CNY14.3bn due to higher capex and working capital outflow; Fitch expects Snton’s FFO adjusted net leverage to remain above 2.5x at the end of 2020. The company spent CNY1.7bn in 2017 with about 70% was for steel cord business. Based on the company’s management plan, Fitch expects Snton’s capex of CNY1.0bn a year for 2018-2020. Meanwhile, the higher working capital outflow was due to a jump in notes receivables, trade receivable days and inventory days. Moody’s downgraded Punjab National Bank to Ba1/Sta from Baa3/Sta reflecting the negative impact of the discovery of fraudulent transactions on the bank’s standalone profile, particularly its capital position. Moody’s also indicated weak internal controls and processes of the bank and the lender’s weak earnings profile will limit its ability to absorb the impact of the fraudulent transactions over the next 12-18 mths. Nonetheless, Moody’s expects the bank will receive capital support from the government and that the bank will be able to release some capital from the sale of its non-core assets and partial stake sale in its housing finance unit. Having said that, Moody’s estimates that the these sources are insufficient which requires PNB to obtain external capital of about INR120bn-INR130bn to meet the minimum Basel III core equity tier 1 ratio of 8% by Mar 19.