S&P500 (SPX)- We expect the index to continue to move in a narrow range with support level at 2,350.

S&P500 (SPX)- We expect the index to continue to move in a narrow range with support level at 2,350.

Hang Seng (HSI)- The immediate support would be at 23,550, which is a confluence of 20MA and trendline. Conversely, if HSI can resume its bullish movement above 24,000, the next resistance is at 24,500.

Strait Times (STI)- If the level is sustained at current level, the resistance turned support level is at 3,118. If the index can sustain above the 3,118 level, the next resistance is at 3,150.

KLCI- The immediate resistance is at 1,710 if the index lifts itself to1,700. Conversely, the next support is at 1,690 if it continues to lose momentum

As Mar approaches, political jitters increase. Recent opinion polls suggest that Far Right parties are leading in the polls for both Netherlands (15 Mar) and France (23 Apr and 7 May) and that has many investors shorting the EUR as well as the USDJPY. Netherlands is also expected to hold a parliamentary inquiry into whether they

GBL: Political Jitters

Global Markets Daily by Saktiandi Supaat

FX Research

As Mar approaches, political jitters increase. Recent opinion polls suggest that Far Right parties are leading in the polls for both Netherlands (15 Mar) and France (23 Apr and 7 May) and that has many investors shorting the EUR as well as the USDJPY. Netherlands is also expected to hold a parliamentary inquiry into whether they should drop the EURO after ECB easing hits Dutch pensions. We continue to prefer shorting the EUR as we head into Mar, expecting political noises to swing ...

UST curve bull-flattened along the 2y10y with the 10y yield down 10bps WoW. No news is seemingly bad news for Trump’s reflationary bets as much optimism has been priced in. Core 10y sovereign yields like JGB, Gilt and Bund have either fully reversed or en route to recoup the selloffs in last November. That said, uncertainties

Credit Market Watch: Summary for week ending 24-Feb

·         MYR Credit:

Ø  MGS market rallied 7-9bps along the 10y15y WoW with foreign buying seen in the 7y to 15y part of the curve including the MGS 6/31. The new 7y GII 8/24 and 10y GII 7/27 continued to be well bid, strengthening 4bps and 9bps respectively WoW. Secondary trading activity for corporate bonds was a modest MYR2.7b with most in the 5-10y sector. Corporate bond supply is expected to pick up pace in the next few weeks.

Ø  Econs: External reserves stood unchanged from end-January at USD95b in mid-February. Inflation jumped in January with headline CPI printing at 3.2% YoY (Dec 2016: 1.8%) but was mainly due to the rise in transport costs and prices of food and non-alcoholic beverages. Core inflation remained stable at 2.3% YoY. Our economic research raises 2017 CPI forecast to 3.0%-3.5% from 2.5%.

Ø  FWU Life Insurance: MARC affirmed financial strength rating of AA- and changed the outlook from developing to stable as the merger between FWU Life and Skandia Austria has been terminated, hence business remains as usual for FWU Life. The agency did highlight possible financial pressure going forward given uncertainties in the Europe region following Brexit.

Ø  Relative value: GovCo, as usual, offer some yield pick over other GG names e.g. GovCo’27 about 15bps wide from fitted GG curve.

·         Asian Credit:

Ø  UST curve bull-flattened along the 2y10y with the 10y yield down 10bps WoW. No news is seemingly bad news for Trump’s reflationary bets as much optimism has been priced in. Core 10y sovereign yields like JGB, Gilt and Bund have either fully reversed or en route to recoup the selloffs in last November. That said, uncertainties still abound as President Trump will address before the Congress on Tuesday (US time) and both Fed Chair Yellen and Vice Chair Fischer will speak on Friday (US time). As we write, the future-implied probability of FFR hike is 40% in March FOMC and 73% in June FOMC.

Ø  Asian USD credit overall traded firmer although spreads widened a tad due to profit taking activities on the back of UST rally. Spreads on JACI composite, JACI IG and JACI HY added 2bps each WoW. On sovereign, MALAYS curve outperformed nudging 10-15bps lower while INDON, KOREA and PHILIP all traded about 3-8bps lower in yields WoW.

Ø  Rating changes: Parkson Retail’s rating was downgraded by Moody’s to B3 with a stay of negative outlook, following a similar action by Fitch last month. The agency cites that both the profitability and cashflows continued to deteriorate, with structural challenges in China’s retail market and intense competition from online retailers. Six underperforming stores were closed but failed to revise profitability. In 2016, sales declined and operating losses widened YoY. Since 2013, the rating of Parkson Retail has been under pressure with cumulative downgrades of 4-6 notches by S&P, Moody’s and Fitch due to continued operating challenges and deterioration in credit metrics.

·         CDS: EM Asia 5y CDS spreads tightening trend continued for the 6th week in a row, led by Indonesia -10bps, Thailand -9bps, China and Malaysia -8bps each while Philippines and Korea -4bps and -2bps respectively WoW.

RAM Ratings has reaffirmed the AA1(s)/Stable rating of Samalaju Industrial Port Sdn Bhd’s (Samalaju or the Company) Sukuk Murabahah programme of up to RM950 million (the Sukuk). The rating is premised on an unconditional and irrevocable corporate guarantee extended by Samalaju’s parent company, Bintulu Port Holdings Berhad (BPHB, rated AA1/Stable/P1).

Published on 27 Feb 2017.

RAM Ratings has reaffirmed the AA1(s)/Stable rating of Samalaju Industrial Port Sdn Bhd’s (Samalaju or the Company) Sukuk Murabahah programme of up to RM950 million (the Sukuk). The rating is premised on an unconditional and irrevocable corporate guarantee extended by Samalaju’s parent company, Bintulu Port Holdings Berhad (BPHB, rated AA1/Stable/P1). 

In view of BPHB’s solid relationship with the Government of Malaysia – given the latter’s shareholdings in BPHB through various government agencies, the Sarawak Government and Petronas – the federal and state governments are seen as having an incentive to provide the Company with financial assistance. This would facilitate the success of the Sarawak Corridor of Renewable Energy while ensuring Samalaju meets its financial and operational obligations. We believe that the Company will continue to derive financial flexibility from BPHB and both the federal and state governments.

Samalaju will be the operator of the Samalaju Port (the Port) upon its expected completion by mid-2017, under a 40-year contract. Construction of Phase 1 of the deep-sea port – which will have a handling capacity of 18 million tonnes - at a cost of RM1.9 billion is currently ongoing. Once completed, it will serve as a dedicated port to the energy-intensive players at the Samalaju Industrial Park (the Samalaju Park). 

The overall construction of Samalaju Port (the Port or the Project) as at December 2016 is at 95% against the scheduled progress of 99%, with delays stemming from slower than expected progress in its capital dredging works. That said, the Company is targeting to meet its Principal Agreement (PA) requirement i.e. to commence operations by June 2017, as the bulk of its construction has been completed. Meanwhile, on the costs front, the Company has incurred RM10 million in costs overruns as at November 2016 owing to design changes, which was sufficiently covered by the liquidated damages (LDs) provisions under the contracts with the contractors.

However, PA between the Sarawak government and BPHB provides for its termination if the construction of the Port is not completed by June 2017 in the absence of extensions. We have been informed by Samalaju that no extension has been requested to date. The likelihood of the PA’s termination in this regard is viewed as low given the Port’s importance to the State in ensuring the success of the SCORE. 

We have assumed that the Port will record a lower throughput when it becomes operational. For the abovementioned reasons, we foresee Samalaju incurring further debt (in the absence of shareholder support), with its gearing ratio under our stressed case projected to peak at a high 2.55 times over the next 5 years, while its funds from operations (FFO) debt coverage will hover at a weak 0.05 times (base case: 1.79 times and 0.14 times, respectively). Samalaju’s FFO is not envisaged to be adequate to service its annual finance obligations.

Apart from operational risk, Samalaju is exposed to regulatory risk as the Port’s tariffs had been revised and gazetted by the State Government in December 2016. We do not discount further revisions in assumptions on tonnage and pricing prior to the commissioning of the Port. The Company’s earnings and cashflow will come under further pressure should the gazetted tariffs be revised lower.

Analytical contact
Adeline Poh
(603) 7628 1021
adeline@ram.com.my

Davinder Kaur Gill
(603) 7628 1118
davinder@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my