AsianBondsOnline Newsletter (29 April 2013)

News Highlights - Week of 22 - 26 April 2013

Hong Kong, China's consumer price inflation fell to 3.6% year-on-year (y-o-y) in March from 4.4% in February, due to a decline in food price inflation. In Japan, consumer prices fell 0.9% y-o-y in March compared with a deflation rate of 0.7% in February. In Singapore, consumer price inflation eased to 3.5% y-o-y in March from 4.9% in February, due to smaller price increases across all major categories. In Viet Nam, consumer price inflation eased marginally to 6.61% y-o-y in April from 6.64% in March, with food and telecommunications prices easing the most.

*     The Bank of Japan (BOJ) last week announced that it will conduct money market operations targeting an increase in the monetary base of about JPY60-70 trillion annually. The BOJ also said that it will continue with the quantitative and qualitative monetary easing measures it announced in its last policy meeting (4 April) as it aims to achieve a 2.0% price stability target.

*     On 25 April, the Monetary Board of Bangko Sentral ng Pilipinas (BSP) decided to keep its key policy rates-the overnight borrowing and lending rates unchanged-at 3.5% and 5.5%, respectively. The reserve requirement ratios were also unchanged. However, the Monetary Board lowered interest rates on the Special Deposit Account (SDA) facility by 50 basis points to 2.0% across all tenors.

*     Trade deficits were recorded in Hong Kong, China (HKD49.1 billion in March), the Philippines (US$967 million in February), and Viet Nam (US$1 billion in April).

*     Based on advance estimates from the Bank of Korea, real gross domestic product (GDP) of the Republic of Korea grew 0.9% quarter-on-quarter (q-o-q) and 1.5% y-o-y in 1Q13.

*     Singapore's manufacturing output contracted 4.1% y-o-y in March, lower than the revised decline of 16.3% posted in February.

*     The Hong Kong Monetary Authority (HKMA) will remove its net open position and liquidity ratio requirements on CNH. Meanwhile, Hong Kong, China's Treasury Markets Association announced that it plans to launch a CNH Hong    Kong Interbank Offer Rate (CNH HIBOR) fixing in June. 

*     The People's Republic of China's (PRC) current account surplus rose from US$23.5 billion in 1Q12 to US$55.2 billion in 1Q13. The financial and capital account rose from US$56.1 billion to US$101.8 billion in the same period. Taken together, the PRC posted a balance of payments surplus of US$157 billion in 1Q13.

*     Last week, Citic Securities issued a Reg S US$800 million 5-year bond with a coupon of 2.5%. Daegu Bank based in the Republic of Korea priced a 5-year US$-denominated Reg S bond worth US$300 million at a coupon rate of 2.25%. Japfa Comfeed, an Indonesian animal feed company, priced a US$200 million Reg S 3-year bond.  

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

MARC PLACES KNM GROUP BERHAD’S AND KNM CAPITAL SDN BHD’S PROGRAMME RATINGS OF MARC-1ID/A+ID ON MARCWATCH NEGATIVE

MARC PLACES KNM GROUP BERHAD’S AND KNM CAPITAL SDN BHD’S PROGRAMME RATINGS OF MARC-1ID/A+ID ON MARCWATCH NEGATIVE

Apr 25, 2013 -

Today MARC placed its short term and long term debt ratings of MARC-1ID and A+ID ratings on the KNM Group Berhad (KNM Group or KNM) and KNM Capital Sdn Bhd (KNM Capital) on MARCWatch Negative to highlight event risk concerns arising from the winding up petition that was recently served on KNM Group's material subsidiary, KNM Process Systems Sdn Bhd (KNM Process). KNM Process is defined as a material subsidiary within the principal terms and conditions of the rated debt programmes. KNM Capital is a wholly-owned funding vehicle of KNM Group.

The MARCWatch Negative placement affects RM50 million of outstanding notes under KNM Capital's RM300 million Murabahah Underwritten Notes Issuance Facility/Islamic Medium Term Notes (IMTN) Programme as well as two debt programmes belonging to KNM Group. KNM Group has yet to issue any notes under its RM400 million Islamic Commercial Paper Programme and RM1.1 billion IMTN Programme. 

The aforementioned winding up petition by Mission Biofuels Sdn Bhd (Mission) was served over an alleged debt of RM12.2 million together with interest and cost which it is claiming as liquidated ascertained damages for KNM Process' failure to achieve final acceptance of a biodiesel and glycerine plant, under an engineering, procurement, construction and commissioning (EPCC) contract dated July 25, 2007. The petition is fixed for hearing on July 18, 2013. Prior to the petition by Mission, MARC notes that KNM Process had filed suits against Mission for outstanding payments under the EPCC contract. MARC understands that on April 24, 2013, KNM had obtained an interim injunction to restrain Mission from amongst others, proceeding further with the petition until an inter partes hearing on May 9, 2013.

MARC is concerned that the presentation of a petition against KNM Process could trigger an event of default (EOD) under the rated programmes. The principal terms and conditions for issuance under the rated facilities provide for the declaration of an EOD if a petition is presented for the winding up of the issuer and/or KNM and/or any of the material subsidiaries and no action is taken to set aside the petition for winding up within 30 days from the date of service of such petition. A declaration of EOD by the noteholders, will result in acceleration of the outstanding RM50 million under KNM Capital's RM300 million Murabahah Underwritten Notes Issuance Facility/IMTN Programme.

To resolve the MARCWatch Negative placement, MARC will monitor developments with regard to the aforementioned proceedings. As part of the review process, MARC will also examine the mitigating actions that KNM has taken since the rating agency's last rating action in November 2012 to strengthen its overall financial profile, particularly its cash flow and liquidity position. The rating agency had revised its outlook on the ratings to negative in its last review while affirming the ratings. An adverse development on the winding up petition could result in multiple-notch rating downgrades.

Contacts:

Sharidan Salleh +603-2082 2254 begin_of_the_skype_highlighting +603-2082 2254 FREE  end_of_the_skype_highlighting / sharidan@marc.com.my,

Se Tho Mun Yi, +603-2082 2263/ munyi@marc.com.my.

Brunei Darussalam: Infrastructure snags to boosting tourist numbers (By Oxford Business Group)

Brunei Darussalam: Infrastructure snags to boosting tourist numbers

Having begun to roll out a tourism master plan that puts the spotlight on natural and cultural assets, Brunei Darussalam is targeting an 8% increase in visitor numbers this year.
Under the plan, which will be introduced in stages, the Sultanate aims to revive areas of … Read more.

International Shariah Research Academy for Islamic Finance proposes regulatory recommendations (By IFN)

International Shariah Research Academy for Islamic Finance proposes regulatory recommendations

Daily Cover

GLOBAL: The 3rd annual ISRA-IRTI-Durham University strategic roundtable – a collaboration between International Shariah Research Academy for Islamic Finance (ISRA), Islamic Research and Training Institute (IRTI) and Durham University – saw discussions on risk management and risk sharing; resulting in regulatory, product and institutional recommendations for the industry. On the regulatory front, the roundtable – comprising of Shariah scholars, academicians and industry practitioners – discussed the promotion of equity-based financing; calling for adjustments in current global legal, tax and regulatory frameworks to create a level playing field for equity in relation to debt. The participants suggested an all-encompassing approach towards evaluating the impact of debt in society, as well as stricter monitoring by regulators on the extent and use of debt in Islamic financial products. There was also a call for the management of risk in equity-based financing on the asset side, including the sharing of liabilities. The paper said: “The returns given on the liabilities side should commensurate with the risk-return profile of the portfolio on the asset side.” Islamic banks were also encouraged to introduce special funds and restricted investment accounts in equity-based financing to mitigate the need for higher capital, as well as the enhancement of their risk management infrastructure; including risk governance and risk management processes. The declaration was endorsed and agreed upon by all participants at the roundtable, including Professor Dr Azmi Omar, director general at IRTI, Associate Professor Dr Mohamad Akram Laldin, executive director at ISRA and Associate Professor Dr Asyraf Wajdi Dusuki, head of research affairs at ISRA.

The Philippines: FDI on the up (By Oxford Business Group)

The Philippines: FDI on the up

After years of slow growth in foreign direct investment (FDI) following the global financial crisis, the Philippines is now showing high potential for a return to 2007 FDI levels. The country still lags behind some of ASEAN neighbours in overall investment per capita levels, although strong economic growth and new anti-corruption measures, combined with a recent credit rating upgrade from Fitch Ratings, have improved the Philippines’ international reputation.
In March 2013 Bangko Sentral ng Pilipinas (BSP), the central bank, announced that FDI in the Philippines had reached … Read more.