FW: RHB FIC Credit Markets Update - 23/5/18

 

 

Credit Markets Update

           

Healthy FX Reserves USD109.4bn; April CPI Data Higher at 1.4%.

MYR Credit Market:

¨      FX Reserve stood at USD109.4bn; Apr CPI higher at 1.4% YoY. MGS yield curve rallied overnight as the 3y, 5y, 15y MGS saw yields eased down between -2bps and -8bps to close at 3.76%, 3.81% and 4.57% respectively while the 10y MGS inched higher +1bps to 4.22% led to widening of 3y10y spreads. The reopening of 10y MGS 06/28 was closed today with an average yield of 4.202%. This auction had a BTC of 1.85x, compared to 2.066x seen in the previous auction in Feb 18. The MYR closed the day stronger +0.3% at 3.675/USD.

¨      Govvies trading volume jumped to MYR2.7bn. Almost 60% of the trades occurred in the short end where maturities ranging 2018-2021. Among the benchmark issuances, the 10y MGS 11/27 saw MYR237m traded to inch higher +1bps to 4.22% while 5y GII 04/22 was traded stronger at 3.91% (-2bps), on trades of MYR130m. Most notable short-dated MGS 03/19 on trades worth MYR346m, rallied -10bps to close at 3.40%, followed by MGS 11/19 and MGS 11/33 which saw MYR240m and MYR237m transacted to end at 3.52% (-10bps) and 4.57% (-5bps) respectively. In the GII space, GII 08/20, GII 07/23 and GII 10/18 all saw yields lowered between 2bps and 10bps to close the day at 3.72%, 4.07% and 3.38%. The total trading volume for these issuances were MYR310m, MYR175m and MYR100m.

¨      Corporate trades increased to just under MY280m trades against MYR172m the day before. About 71% of trades were focused on short-dated securities maturity 2018-2021, mainly AA-rated issuers and above. Cagamas Berhad on total trades of MYR70m saw CAGAMAS 08/18, 11/20 and 04/19 ended mixed to close at 3.68% (-9bps), 4.27% (-14bps) and 3.93% (+10bps) respectively. Government-guaranteed PASB 06/18 on trades worth MYR45m remained unchanged at 3.47% while RANTAU 08/19 saw yield pushed up +8bps to end at 4.18% on trades of MYR30m. Meanwhile, PBFIN 06/59 was traded weaker at 4.56% (+36bps).

¨      In economic news, the BNM international FX Reserves came out at USD109.4bn as of 15 May 18 against USD109.5bn at end-Apr, sufficient to finance 7.6 mths of retained imports and 1.1x of short-term external debt. The Malaysia’s CPI index rose 1.4% YoY Apr (consensus of 1.6%), as steady fuel prices offset the increased food costs.

¨      In the primaries, coming to the market UEM Sunrise Berhad with issuance of MYR100m from its MYR2.0bn ICP/IMTN programmes. The issuance has a maturity of 12 mths with coupon rate of 4.62%.

¨      RAM Ratings reaffirmed Encorp Systemblit Sdn Bhd at AA1/Sta. Encorp is the concessionaire for the development of 10,000 units of teachers’ quarters throughout Malaysia, based on “build, transfer and finance” concept. The reaffirmation is based on the rating agency’s assessment of Encorp’s ability to maintain a minimum FSCR of 1.5x under RAM’s stressed scenario which commensurate with the rating band. FSCR is supported mainly by consistent receipt of contractual payments from the government which are not conditional on performance as the company is not required to carry out maintenance work on the teachers’ quarters that it had built under its concession. However, RAM opines that Encorp is susceptible to the possibility of delayed payments; since this is the company’s sole source of funds to meet sukuk obligation, any significant delay will affect its debt-servicing ability. RAM Ratings has reaffirmed Northern Gateway Infrastructure Sdn Bhd (NGISB) at AA1/Sta, considering an irrevocable and unconditional financial guarantee insurance policy from Danajamin Nasional Berhad which mitigates construction risk. NGISB also has strong debt-servicing ability backed by predictable concession cashflows from the government. Upon project completion, NGISB is entitled to contractual cashflows from the Ministry of Home Affairs, which to date, the company has yet to receive any concession payments for Phase 1 due to administrative issues which are uncommon during the early days subsequent to the completion of a project. RAM’s stressed test suggest that the minimum DSCR is projected to be 1.5x, within the rating threshold.

APAC USD Credit Market:

¨      The US Treasury yields were muted as investors remained on the sidelines ahead the release of the minutes of the FOMC May meeting. Market participants will hope to get clarity on how the Fed will allow inflation to go beyond 2% after emphasizing in May FOMC statement that the inflation target was symmetric. USTs closed relatively unchanged across the curve. The 2y, 5y, 10y and 30y USTs all closed at 2.57%, 2.90%, 3.06% and 3.20% respectively. Meanwhile, President Trump said the US-North Korea summit in Singapore may be postponed. President Trump was also reported as saying he is not satisfied with China trade talk following US-China trade negotiation last week where China agreed to reduce tariffs on passenger vehicles and auto parts. Over in Italy, the market awaits President Sergio Mattarella’s next move after the leader of the 5 Star Movement and The League presented their Prime Minister candidate. The USD as seen in DXY remained unchanged at 93.61 (-0.07%) overnight. On the economics, there was no major economic data released yesterday. Markit US PMI for manufacturing, services and composite will be out today along with the new home sales data.

¨      The iTraxx AxJ credit spread rallied -0.7bps to 74.57bps. Leading the rally Chinese financial institutions Bank of China and Industrial & Commercial Bank of China which saw spread lowered approximately -1.92bps and -1.5bps respectively. PCCW-HKT Telephone Ltd saw spread eased down -0.88bps and Indian-based Reliance Industries Ltd’s CDS level rallied about -0.62bps. In the sovereign front, Indonesia saw spreads pull down -1.29bps, followed by Thailand and Malaysia both saw spreads lowered -0.4bps and -0.35bps respectively. On the other hand, the sovereign of South Korea saw CDS spread increase +3.41bps. Meanwhile, South Korean corporates Korea Electric Power Corp and Industrial Bank of Korea both saw spreads higher about +0.59bps and +0.31bps respectively. Indian financial institutions ICIC Bank Ltd saw spreads inched higher +0.52bps while State Bank of India had its CDS level higher +0.51bps.

¨      Over in ratings, Moody’s upgrades Emeco Holdings Limited to B/Sta from B-/Sta. This reflects Fitch’s view that the company is well positioned to capitalise on its increased fleet size and rising rental yield following a series of acquisitions which is expected to bring in additional 83 machines with low operating hours. Matilda generated revenue of around AUD8.5m and EBITDA of AUD6.0m between Jan and Mar 18. Based on Fitch’s assessment, Emeco’s business and financial profile is expected to further improve following its planned AUD80m equity-funded acquisition of Matilda Equipment. The company plans to improve its net debt/operating EBITDA to below 1.5x by 2020 from end-2017 level of 2.1x on proforma basis. Fitch expects Emeco’s FFO adjusted net leverage to improve to around 2.0x by 202 due to its larger fleet. This notwithstanding, the company is susceptible to commodity-price changes and the need for large capex to expand during the commodity-price up-cycle.