AsianBondsOnline's Electronic Newsletter

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News Highlights - Week of 15 - 19 April 2013

Consumer price inflation in Malaysia inched upward to 1.6% y-o-y in March from 1.5% in February, due to increases in food prices. Producer prices in the Republic of Korea fell 2.4% y-o-y in March-the sixth consecutive month of decline-stemming from a 4.1% fall in the price index for manufactured goods.

*     The Republic of Korea's Ministry of Strategy and Finance (MOSF) reported last week that a supplementary budget of KRW17.3 trillion will be utilized to help stimulate the domestic economy in 2013. MOSF also reported that the 2013 supplementary budget calls for a KRW15.8 trillion net increase in issuance of Korea Treasury Bonds (KTBs).

*     In the Republic of Korea, department store sales grew 7.5% y-o-y in March. In contrast, discount store sales contracted 4.4% y-o-y in March, following an 8.9% expansion in February. In Singapore, February's retail sales increased 3.6% month-on-month (m-o-m) on a seasonally adjusted basis, compared with a revised drop of 1.2% in January.

*     Over-the-counter (OTC) bond trading volume in the Republic of Korea grew 20.7% m-o-m to KRW567.1 trillion in March. All investor types recorded increases in their OTC bond trading volume.

*     Bangko Sentral ng Pilipinas' (BSP) Monetary Board last week released new rules to further liberalize the existing foreign exchange regulations which aim to further simplify foreign exchange transactions of the general public.

*     San Miguel Corporation (SMC) plans to raise US$2 billion through issuance of US$-denominated notes, as part of its Medium-Term Note Program to be used for refinancing, working capital, and general corporate requirements. SM Investments Corporation (SMIC) plans to raise more than PHP25 billion via loans and bonds as part of PHP65 billion in capital expenditure for the year.

*     Last week, Kaisa Group Holdings issued a CNH1.8 billion 3-year bond at a coupon rate of 6.875%. Funds took 73% of the bond, followed by private banks at 16%. Also, Future Land issued a CNH1.5 billion 3-year bond at a coupon rate of 9.75%. Sinopoec issued a multitranche US$ bond: a $750-million 3-year tranche, a US$1 billion 1-year tranche, a US$1.25 billion 10-year tranche and a US$500 million 30-year tranche.  The coupon rates are: 1.25%, 1.875%, 3.125% and 4.25%, respectively.

*     Government bond yield fell last week for all tenors in the Republic of Korea, and for most tenors in the PRC; Hong Kong, China; Indonesia; Malaysia; the Philippines; Thailand; and Viet Nam. Yield rose for most tenors in Singapore. Yield spreads between 2- and 10- year maturities widened in Indonesia, Malaysia, Singapore, and Viet Nam, while spreads narrowed in most other emerging East Asian markets.

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Dubai banks expected to boost lending as economy picks up (By IFN)

Dubai banks expected to boost lending as economy picks up

Daily Cover

UAE: As Dubai property prices see a steady gain of 6.2% since 2011 and industries such as trade, tourism and project financing pick up in the emirate, analysts have indicated a rise in risk appetite amongst domestic companies, particularly banks. According to government data, Dubai’s economy saw a 4.1% expansion in 2012, as the number of flights through Dubai Airport rose to 57.7 million, or by 13%. Bloomberg data also showed banks such as Dubai Islamic Bank, Mashreq Bank and Emirates NBD posting higher financing growth, outpacing other banks in the emirate. Development projects have also resumed in the emirate, which following the 2008 property crash, had become somewhat of a ghost town. Figures now point towards growing investor confidence and accelerated project launches, with the emirate’s major property developers Emaar Properties and Nakheel announcing a resumption of housing developments following a surge in demand. As a prudent measure, the Central Bank of UAE had proposed a cap on mortgage lending at the end of last year. However, this was met with pockets of resistance from the financial community, especially bankers, who did not see an end to speculative buying despite the imposition of a cap; and feared a dip in demand in the property market. According to Moody’s, Dubai is expected to see an increase of 5-10% in credit growth this year, after seeing a rise of 2.6% in 2012. However, Saudi Arabia and Qatar are expected to supersede this, following strong credit growth performances of 16% and 27% in 2012.

Malaysia: Religious tourism boost (By Oxford Business Group)

Malaysia: Religious tourism boost

Having been ranked the friendliest country for Muslim holidaymakers for the third year running, Malaysia has confirmed its position as a premier halal tourism destination. However, its position – and the revenue that comes with it – could be challenged by regional rivals seeking to cash in on the lucrative market.
The tourism sector is already a major contributor to the Malaysian economy ... Read More.

RAM Ratings reaffirms AAA rating of Prasarana's government-guaranteed bonds

Published on 03 May 2013

RAM Ratings has reaffirmed the AAA rating of Syarikat Prasarana Negara Berhad’s (“Prasarana” or “the Group”) RM5.468 billion Nominal Value Redeemable Guaranteed Serial Fixed-Rate Bonds (2003/2016) (“the Bonds”), with a stable outlook.
The rating reflects the irrevocable and unconditional guarantee of the Bonds by the Government of Malaysia (“GoM”) as well as the strategic importance of Prasarana as an owner and operator of key public-transport infrastructure. A wholly-owned subsidiary of the GoM, the Group operates on a non-commercial basis and relies on grants and other GoM-backed funding. Based on our Rating Approach for Government-Linked Entities (“GLEs”), Prasarana is viewed as a dependent entity. As such, the credit risk of the Group mirrors that of the GoM. For further details, please refer to RAM’s Rating Approach for GLEs, published in August 2011.
Prasarana was incorporated in 1998 as part of the GoM’s initiative to restructure the public transportation system. Through its subsidiaries, the Group owns and operates the light rail transit (“LRT”) systems of the Klang Valley, the KL Monorail and the bus fleets servicing the Klang Valley, Penang and Kuantan. To expand its revenue base, as public-transport operators overseas have done, Prasarana has ventured into the real estate industry. In this regard, it has entered into several joint-ventures to develop a mix of commercial and residential property projects, mostly on land owned by the Group in the vicinity of LRT stations.
Prasarana remained in the red for 11M FY Nov 2012. The Group has been recording operating losses due to low fares, huge operating costs and unprofitable routes given its social obligation to provide public transport services. As at end-November 2012, Prasarana shouldered a heftier debt load of RM10.59 billion (end-December 2011: RM9.41 billion). The increase in borrowings was largely due to the issuance of RM2 billion of government-guaranteed sukuk to fund the Group’s capital expenditure and to refinance some of its existing borrowings. In line with its heavier debt load and eroded equity, Prasarana’s gearing ratio weakened to 15.5 times as at end-November 2012 (end-December 2011: 5.4 times). Its balance sheet is envisaged to improve going forward, with capital contributions of around RM2 billion received from the GoM in January 2013.
“Going forward, the Group’s debt burden is expected to increase to around RM14 billion with the potential issuance of RM6 billion of sukuk to fund the extension of the LRT lines and existing infrastructure development projects. Nevertheless, as an owner and operator of key public-transport infrastructure, Prasarana plays a critical role in the GoM’s initiatives to improve public transportation; its relationship with the latter is viewed as strong. We believe that the Group will continue to derive financial flexibility from the GoM,” says Kevin Lim, RAM Ratings’ Head of Consumer and Industrial Ratings.

Media contact
Evelyn Khoo
(603) 7628 1075
evelyn@ram.com.my

The IDB’s Sovereign Sukuk Insurance Policy to enable junk-rated member countries to issue Sukuk (By IFN)

The IDB’s Sovereign Sukuk Insurance Policy to enable junk-rated member countries to issue Sukuk

Daily Cover

GLOBAL: The IDB, via its insurance arm, the Islamic Corporation for Insurance of Investment and Export Credit (ICIEC), will be providing a new insurance product, dubbed the Sovereign Sukuk Insurance Policy, to insure Sukuk investors against default on Sukuk issued by sovereign members of the IDB and ICIEC. The product, which was endorsed and agreed upon by the ICIEC’s board of directors yesterday, is expected to allow the ICIEC’s member countries; particularly those whose ratings are not so favorable, to tap the international capital markets and boost investor confidence in the issued papers. Dr Abdel Rahman Al Tayeb Taha, the CEO of the ICIEC explained: “In line with its mandate to facilitate the flow of investments and project finance to its member countries, ICIEC has taken the initiative to launch this innovative insurance product which is the first of its kind in the market. We are targeting sovereign Ijarah Sukuk at the outset, and will roll this product out to other forms of Sukuk in due course. This is in line with the strategy of the IDB Group to promote infrastructure development and the expansion of Islamic finance across its member countries.” He added that the product will enable member countries which are rated below investment grade, or unrated, to gain access to the international capital markets, while the ICIEC’s ‘Aa3’ rating by Moody’s will serve as “a strong credit enhancement mechanism, and encourage international banks and investors to participate in such Sukuk offerings”. The IDB’s member countries such as Egypt and Tunisia are currently rated as junk by rating agency S&P and it is expected that such a policy will aid in catalyzing these countries’ goals to issue Sukuk this year. A UK-based credit analyst said: “The IDB’s plan is a positive development for the Sukuk market and demonstrates that Shariah compliant capital market instruments are maturing. A direct guarantee is probably a stronger form of protection than credit default swaps.” The product is expected to be made available before the end of this year.