BPA Malaysia weekly bond market report 24 December 2017

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The focus of the Thomson Reuters BPAM All Bond Index Performance  this week was the US Tax Reform plan, which was passed in both House and Senate on Wednesday.

The approval of US$1.5 trillion tax cut plan was the most drastic changes to the US tax code since 1986, which includes permanent tax breaks for corporations and temporary tax cuts for individuals. As a result of US tax reform, US Treasury yields surged up across the board.

Despite that, the trading activities in ringgit bond market remained lacklustre as many market players were away for festive season as well as year-end holiday. Hence, the TR BPAM All Bond Index registered a marginal gain of 0.084 per cent to 155.683 points compared to 155.552 points last Friday.

On December 20, 2017, the Statistics Department of Malaysia released the Consumer Price Index in November 2017, which rose by 3.4 per cent as a result of the hike in fuel prices.

According to the statement, the major groups recorded the increases were the indices for transport (10.8 per cent), food and non-alcoholic beverages (four per cent), restaurants and hotels (2.8 per cent), furnishings, household equipment and routine household maintenance (2.5 per cent), health (2.2 per cent) and housing, water, electricity, gas and other fuels (2.2 per cent).

On the other hand, core inflation rose by 2.2 per cent on year-on-year basis.

The total trade volume of the top 10 most actively traded bonds declined further to RM3.7 billion from RM5.9 billion last week. The 10-year benchmark 11/2027 MGS paper topped the list with RM0.9 billion changed hands.

Looking at new issuances, on December 18 and 19, Maybank Islamic Bhd issued a 5-year sukuk and a 1-year discount sukuk respectively with a total issuance size of RM2.25 billion. The 5-year sukuk bears a profit rate of 4.20 per cent. Both sukuk are rated AAA with stable outlook by RAM Ratings.

On December 21, Fortune Premiere Sdn Berhad issued a 5-year sukuk with a profit rate of 4.65 per cent. The sukuk has an issuance size of RM100 million. Fortune Premiere is a special funding vehicle set-up by IOI Properties Group Berhad (IOI Properties) to undertake the sukuk issuance.

Hence, the assigned rating by MARC at AAIS with stable outlook reflects the credit strength of IOI Properties which will provide an unconditional and irrevocable corporate guarantee on the sukuk.

On ratings actions, On December 20, RAM has reaffirmed the rating of Besraya (M) Sdn Bhd’s RM700 million Sukuk Mudharabah Issuance Facility (2011/2028) at AA3, but revised the outlook to negative from stable.

The rating outlook revision was premised on concerns that the company’s recent dividend distribution of RM70 million and construction of Kuchai Link 2 which will cost RM 50 million over the next 3 years could strain the financial health of the company.

Furthermore, in its press release, RAM Ratings also indicated that the sukuk rating may be downgraded in the absence of any outperformance of RAM Ratings’ sensitised cashflow assumptions over the next few years and that continued dividend payments may also put pressure on the rating.

On 21 December 2017, RAM Ratings has revised the outlook on the AA3 rating of Al-Dzahab Assets Bhd’s RM45 million Tranche 3 Class B Sukuk, from stable to positive.

The rating of Tranche 3 Class A Sukuk remains at AAA/Stable. Tranche 3 is collateralised by a portfolio of personal-financing (PF) facilities (extended to civil servants) originated by RCE Marketing Sdn Bhd (RCEM) through its business partners, repaid via non-discretionary salary deductions processed by the Accountant General’s Department and Angkatan Koperasi Kebangsaan Malaysia Berhad.

The revision of the rating outlook indicates RAM Ratings’ expectation that the collateral cover supporting the Class B Sukuk will improve to a level that corresponds to a higher rating, if the underlying portfolio is able to sustain its current performance. In the 6 months since the issuance date, the underlying pool has outperformed in terms of loss performance, resulting in a larger surviving pool than initially estimated.