Capital markets executive summary | Wed 14 Jun 2023

Capital markets executive summary | Wed 14 Jun 2023

TM gets 10-year concession extension for MyGov*Net

In Jan, Telekom Malaysia Bhd (TM) accepted a letter of implementation for the extension of the MyGov*Net concession from 1 Jan 2023 to 31 Dec 2032. Yesterday, GITN Sdn Bhd – a wholly-owned subsidiary of TM – signed the concession extension with the government. The value of the concession – called MyGov*Net 2.0 – is capped at RM4.9b including sales and service tax. Its scope of work covers providing a secured integrated telecommunications network connecting more than 10,000 government premises in Malaysia and Malaysian embassies overseas. MyGov*Net – which was previously called 1Gov*Net – is the government’s integrated telecommunications network that is centrally managed by the Malaysian Administrative Modernisation and Management Planning Unit (MAMPU). GITN was awarded the original 10-year concession from 1 Jan 2013 for the build-operate-own project which was approved by the government in 2012. TM closed at RM5.

PetChem reaches FID for Gebeng plant acquisition

Petronas Chemicals Group Bhd (PetChem) had signed an agreement with 40% associate BASF Petronas Chemicals Sdn Bhd (BPC) to buy the maleic anhydride (MAn) plant in Gebeng, Kuantan. MAn is used in coatings and polymers, and production of unsaturated polyester resins, paints and food flavouring. The BPC plant has a capacity of 113k tonnes per annum, and is planned to be repurposed and upgraded to produce MAn for the food and pharmaceutical industries. PetChem announced that it has reached the final investment decision (FID) for the acquisition. The acquisition price is undisclosed. Next is the plant’s project execution phase of upgrading and rejuvenating the facilities to produce refined MAn which is expected to be completed by 2H2025. The acquisition – in line with the company’s diversification into derivatives and specialty chemicals – enables it to produce MAn to meet growing demand in Asia-Pacific, Indian subcontinent, European and Middle Eastern markets. It also offers the opportunity for future integration of MAn specialty chemical derivatives with subsidiaries Perstorp and BRB to deliver innovative solutions, and possible synergies with other MAn downstream manufacturers in Malaysia. PetChem closed at RM6.42.

Malaysia 1Q retail sales climb 13.8% year-on-year

The Chinese New Year celebrations and 1-month school holidays contributed to better-than-expected growth. Members of the Malaysia Retailers Association (MRA) and Malaysia Retail Chain Association (MRCA) estimated an increase of 9.2% instead. The department store-cum-supermarket sub-sector posted 16.2% growth, supermarket and hypermarket +7.7%, mini market, convenience store and cooperative +13.4%, and fashion and fashion accessories +23.4%. As retailers normalise after the strong recovery in 2022, 2Q2023 growth will fall to 2.6% and 3Q2023 will expand by 2%. High prices for basic necessities and consumer goods pose the biggest challenge in 2H2023. The overall forecast for 2023 is +4.8%.

Salvare’s 1st tranche senior notes upgraded to AAA

RAM Ratings has upgraded the rating of Salvare Assets Bhd’s RM39m 1st tranche senior notes from A1 to AAA. Salvare is a trust-owned special-purpose vehicle that was incorporated for the securitisation of receivables originated by Axiata Digital Capital Sdn Bhd. Axiata Digital Capital’s Boost provides micro-financing and insurance to micro, small and medium-size enterprises. The 1st tranche senior notes with an over-collateralisation ratio of 61.5% was upgraded because of its fully cash-backed position which is expected to be sustained up to the maturity date of 30 Sep 2024. Salvare confirmed that it will initiate a final subsequent purchase of RM14m of receivables prior to the end of the revolving period on 30 Jun 2023. Since issuance, Salvare has made 2 subsequent purchases of RM42.8m. The senior notes’ credit quality has vastly improved since issuance due to the portfolio’s cumulative net default rate of 3.6% which is lower than the 6% rapid amortisation event (RAE) trigger, given recoveries and repurchase of ineligible receivables by Axiata Digital Capital. The average collection rate on a 2-month rolling basis of 164.2% was higher than the 90% RAE, though, because of prepayment. After the revolving period ends, all cash collections will be trapped in the designated accounts to pay quarterly coupon and for principal redemption on the maturity date, unless Salvare exercises early redemption or if a RAE occurs. Axiata closed at RM2.62.

4% May inflation supports a pause in rate hikes

That is the lowest year-on-year level since Mar 2021. However, the core consumer price index (CPI) was up 0.4% for the 3rd consecutive month. Overall CPI increased by 0.1% due to lower fuel prices. The US Federal Reserve’s Federal Open Market Committee (FOMC) is meeting on 13-14 Jun. Officials had signalled earlier that they will skip a hike this time. Economists predict the Federal Reserve will instead raise interest rates in Jul. Treasury yields fell following the inflation report. In China, rates are falling instead. The People’s Bank of China reduced its 7-day reverse repo rate from 2% to 1.9% when it injected CNY2b (RM1.3b) through the short-term bond instrument. The objective is to boost its economic recovery and restore market confidence.