FW: RHB FIC Credit Markets Update - 2/5/18

 

 

Credit Markets Update

           

15.5y MGS 11/33 Auction Announced; DanaInfra Issues MYR2.5bn.

MYR Credit Market:

¨      MGS yield curve rallies. As global yields pared back losses at the end of the week, the MGS yield curve saw a rally, with the exception of the 20y MGS. The 3y and 10y MGS saw yields fall -11.8bps and -2.6bps to 3.65% and 4.13%. The 20y MGS yields rose +3.6bps to 4.78% while the 30y MGS closed unchanged at 4.89%. The USD on the other hand, continued to trade mixed against EM Asia currencies. The MYR continued to consolidate to 3.9235/USD (-0.10%). Investors will be looking forward to the upcoming PMI data to be released later today as BNM announces the auction of the new 15.5y benchmark of MGS 11/33 scheduled for the 7^th May.

¨      Trading in govvies fell to MYR1.4bn. Ahead of public holidays and following the recent print of the new 10y benchmark GIIs, trading activities in the govvies weakened. Trading was once again mainly focused on benchmark securities. The 7y and 15y benchmarks MGS 03/25 and MGS 04/33, both on trades worth MYR296m and MYR121m respectively, closed the day at 3.96% (-9.4bps) and 4.65% (-4.0bps). The 10y benchmark GII 10/28, on the other hand, rallied -4.2bps to 4.30% on trades worth MYR233m.

¨      Corporate bonds/sukuks trading on the other hand saw volume pick up to just over MYR312m. Among the short maturities, PKNS 05/18 and PKNS 10/18, on joined trades worth MYR30m saw yields rise between +10.5bps and +12.7bps to 4.20% and 4.41% respectively, while GAMUDA 10/18 and CAGAMAS 03/19 saw yields pick up to 4.21% (+5.9bps) and 3.98% (+12.9bps), as MYR20m of trades were recorded each. The subdebt of ALLIANCE callable 10/20, on trades of MYR30m saw yields rally to 4.88% (-7.7bps). Other notable trades include that of SDBB 05/22 and PUTRAJAYA 05/26, which traded mixed to close at 4.92% (-5.2bps) and 4.64% (+6.6bps), on trades of MYR20m recorded respectively.

¨      In the primaries, coming to market after issuing at the end of April, DanaInfra Nasional Berhad issued MYR2.5bn of bonds in four (4) tranches with maturities of 7y, 10y, 15y and 20y, with coupons of 4.32%, 4.55%, 4.90% and 5.08% respectively. Kuantan Port Consortium Sdn Berhad, on the other hand, came to market to tap its new MYR3bn unrated sukuk wakalah programme for MYR650m worth of floating rate sukuks in six (6) tranches with maturities ranging from 4y to 9y.

¨      Over in ratings, RAM reaffirmed the AAA/Sta rating on Genting Malaysia Berhad (GenM). Concurrently, RAM assigned AAA/Sta rating on the MYR3bn MTN Programme (2018/2038) while maintaining the AAA/Sta rating on the outstanding MYR5bn MTN Programme (2015/2035) both by GENM Capital Berhad, backed by a full, unconditional and irrevocable corporate guarantee from GenM. This rating occurred despite GenM’s weaker operating performance 2017, with higher debt levels than anticipated by RAM, as it incorporates RAMs expectations that GenM’s credit metrics will remain largely supportive of its ratings over 2018-2020, and enhanced competitive position after the completion of Resorts World Genting’s (RWG) MYR10.4bn rejuvenation project. In FY 2017, GenM distributed a higher recurring and special dividends, which RAM expects to grow, and views as a departure from previously more conservative capital management. RAM sees GenM’s net debt level to rise to MYR6bn Dec 2020 (2017: MYR0.96bn which will bring net gearing at 0.3x over the next three (3) yrs (2017: 0.05x). In addition, RAM sees the substantial scope and size of the Genting Integrated Tourism Plan (GITP) and the expansion of Resorts World Casino New York City (RWNYC) expose GenM to construction and execution risks. Setbacks in the opening of GITP facilities, especially the 20th Century Fox World theme park, may delay the improvement of its financial profile. GenM may require a longer period to recoup its investments in the GITP and RWNYC, given stiff competition from newer casinos. RAM also notes GenM is susceptible to regulatory risk in Malaysia, the UK, the Bahamas and the US where it operates. RAM Ratings has reaffirmed the AA2/Sta ratings of AEON Co. (M) Bhd. This reaffirmation is based on signs of recovery in AEON (M)’s retail operations following lacklustre performances FY15 and FY16. OPBDIT rose 15.5% FY17, underpinned by stronger contributions from recently revamped outlets, revised pricing strategies for its retail operations, and the reduced losses of unprofitable stores, while supported by its resilient property-management segment. FFODC increased to 0.41x FY17 (0.30x: FY16) while gearing fell to 0.83x Dec17 (0.95x: Dec 16). RAM expects FFODC to fall to around 0.3x FY18 and FY19. Furthermore, RAM expects, with the budgeted capex of MYR500m to be partly funded by internal cash, and with plans to revalue the malls under ownership in 2018, adjusted gearing ratio to remain at 0.8-0.9x. RAM expects AEON (M)’s operating performance to continue improving, although at a more modest pace given the stiff competition in the retail arena. Highly competitive retail industry and rapidly evolving consumer preferences limit RAM’s rating of AEON (M). RAM also opines competition from e-commerce, persistent oversupply in the retail property sector and a significant influx of retail space in the coming years may test AEON (M)’s mall operations. The average occupancy rate of the 26 malls operated by AEON (M) declined to 88.6% Dec 2017 (90.0%: Dec 16).

 

APAC USD Credit Market:

¨      The UST yield curve continues to flatten as the 2y and 10y USTs spreads tightened after both closed at 2.50% (+1.63bps) and 2.96% (+1.13bps) respectively. The 5y UST inched higher +1.52bps to end at 2.81% while the 30y UST remained flat at 3.13% (+0.50bps). The front-end of the curve saw yield hit the highest level in nine years as the FOMC continues today to decide on policy rates. Although the market does not expect a rate hike this round, there is strengthening inflationary pressure amid rising PCE deflator level to 2% for Apr (Mar: 1.8%). The Markit US Manufacturing PMI remained unchanged in Apr at 56.5. The ISM manufacturing index grew at a slower pace in April at 57.2% (Mar: 59.3%) due mainly to higher prices of raw materials especially steel as a result of the trade war between the US and China. It was reported that the US administration is set to temper expectations for a swift breakthrough on the trade issues with China with a delegation led by senior US officials visiting China this week. The ISM index for new orders stood at 61.2 (Mar: 61.9) while ISM employment is lower at 54.2 from 57.3 in prior month. The prices paid also trended upwards to 79.3 in Apr from 78.1 the month before. The USD as seen by the DXY Index continued to strengthen to 92.45 (+0.66%) overnight.

¨      The iTraxx AxJ credit spread rose to 74.18bps. Leading the widening of the CDS spreads were mainly the sovereigns with Philippines seeing spread pushed higher close to +1.59bps, followed by Indonesia (+1.53bps), South Korea (+1.12bps) and Malaysia (+1.12bps). Chinese financial institutions Bank of China Ltd and Industrial & Commercial Bank of China Ltd both saw spreads inched higher approximately +0.94bps and +0.50bps respectively. Meanwhile, South Korean companies Woori Bank, Samsung Electronics Co Ltd and GS Caltex Corp all saw spreads falling between -0.06bps and -0.63bps while China-based CNOOC Ltd saw spread lowered around -0.18bps.

¨      Over in ratings, Moody’s changed Virgin Australia Holdings Limited’s outlook to stable from negative; rating affirmed at B2. The outlook revision reflects Virgin’s improvement in EBITDA driven partly by the company’s three (3) year program called ‘Better Business’ initiative launched in July 2016 which is targeting an annualised cash flow savings of AUS350m. This notwithstanding, Moody’s opines that Virgin’s operating cash flow  remains insufficient to fund capex, including for aircraft, which  implies the company’s FCF remains negative . The rating agency also expects Virgin’s debt/ EBITDA for 2018-2019 to reduce to between 4.9x and 5.2x from 5.8x in 2017. Moody’s downgrades Panda Green Energy Group Limited to B2/Neg from B1/Sta. The rating downgrade reflects Panda Green’s weakened financial profile following its aggressive expansion in 2017 which resulted in elevated business risks and weak debt coverage profile that are no longer within the previous rating threshold. The company invested heavily in solar projects in order to increase its capacity with Moody’s expecting the company to incur annual capex of around RMB2.5bn over the next two years; Panda Green’s total installed capacity rose by 61.6% to 2.087GW in 2017 with no new expansion plan announced YTD 2018. The company has outstanding solar concession acquisition rights and hydropower development rights of RMB824m and RMB1.7bn respectively as of end Dec 17. As a result, Moody’s estimates the financial leverage of the company to drop to below 2% and debt/capitalisation to be around 75%-78%. The negative outlook considers Panda Green’s increased liquidity risk and uncertainties over the timing of the collection of the renewable energy subsidies from the government. Its weak cash flow position is seen by its limited ability to generate positive CFO and its increasing interest costs.

¨      Fitch placed Aviation PLC’s B+/Sta rating on Positive Watch which reflects the company’s increased financial flexibility resulting from the unexpected unsecured notes offering, given the increase in the proportion of unsecured debt in its capital structure and an increase in unencumbered assets. Upon issuance of the notes, Fitch would upgrade the rating to BB-. The proceeds planned for repayment of existing debt, will not change the leverage level of the company; as of Dec 17 the company’s gross debt to tangible common equity stood at 4.2x and will be reduced to between 3.5x and 4.0x in the near term driven by internal capital generation.