FW: RHB FIC Credit Market Update - 24/3/14

Credit Market Update

MYR Yields Rose with Interest on GREs and FIs; APAC HY Outperformed

MALAYSIA

¨      MYR volume up 20%; yields rose on long dated papers. Friday’s activity picked up by 20% to MYR269m amid broadly higher yields, signaling some selling interest in the credit market. Trades focused on long-duration issuances with AAA papers (such as Aman and Prasarana) garnering 48% of total transacted amount, followed by the AA segment (37%). Top traded paper Aman 2/26 realigned to 4.94% (+71bps) from its last trade in Sep-2012, while the yield on Prasarana 11/16 rose 10bps to 3.72% (from last trade on 14-Feb-2014). Financial names similarly garnered interest with higher yields. Maybank 5/24 closed at 4.56% (+12bps since 20-Feb-2014) while HLBank 6/24 settled at 4.87% (+5bps since 19-Mar-2014). On the primary front, Petronas Dagangan (AAA) issued 3/15 paper while Telekom (AAA) issued 3/17 paper of MYR300m each.

REGIONAL

¨      HY space outperformed as spreads narrowed; iTraxx AxJ lowered. Buying interest in APAC credit spreads supported narrowing spreads, particularly within the HY space. JACI composite spread was down 0.8bp last Friday to 266.8bps, with the HY space outperforming where its spread tightened 3.5bps to 512.7bps. The IG space was broadly unchanged at 189.3bps. Meanwhile, the DBSSP 4.7% perp was called last Friday where selective demand on SG financials and other perpetual were seen on the same day as investors attempted to minimize refinancing risks. Aside, short dated China oil & gas names faced mild selling interest.

¨      UniCredit eyes USD T1 Pnc24; India’s EXIM Bank eyes USD. UniCredit S.p.A (Baa2/sta; BBB/neg; BBB+/neg) hired banks to arrange for a RegS Pnc24 USD 5.125% additional T1 security. An offering is expected following roadshows in Europe and Asia, subject to market conditions. Meanwhile, the Export-Import Bank of India (Baa3/sta; BBB-/neg; BBB-/sta)) is eyeing fixed senior unsecured 5.5y USD bonds at T+245bps while Standard Chartered issued a USD 2bn 30y bullet sub-debt (A3/sta; A-/neg; A+/sta), ranked pari passu with T2 notes, at 5.714% (T+210bps).

TRADE IDEA

¨      USD: Switch from CNOOC 10/20 to 5/17 for 50bps pick up and duration shortening by 3y. In the oil & gas sector, we have identified potential value for switching from CNOOC 2.75% 10/20 (yield: 2.41%) to CNOOC 5.65% 5/17 (yield: 2.97%), both senior unsecured and rated at AA3/sta. The switch is appealing in our view, providing a potential 50bp pick-up value despite shortening duration by c.3 years. Its 5/17 paper shows c.70-80bps discount to the CNOOC curve, while its 10/20 paper should be close to low 3.00% if fitted closely to its curve.

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