FW: RHB FIC Credit Market Update - 29/4/14

29 April 2014

Credit Market Update

Mixed Performance Amid Slower MYR Flows; APAC Sentiment Subdued Ahead of FOMC And NFP Data

MALAYSIA                      

¨      Double-A space continued to garner interest; RHB and Khazanah were active. Flows in the corporate space remained low at MYR352m (previous: MYR343m) as investors may be shifting focus to safer assets (such as MGS) ahead of the US FOMC meeting this Wed-Thurs, as well as several significant US economy data due to be released later this week (i.e. non-farm payrolls, ISM manufacturing, Q1 GDP). Increase in MGS flows was evident since mid-last week with an average of c.MYR1.6bn traded (previous week’s average: c.MYR775m). Meanwhile, in the corporate bond space, movements were broadly mixed with investors focusing along the short- to mid-end of the curve. RHB Bank 5/22c17 sub-debt was most traded yesterday at 4.50% (+3bps, volume: MYR60m) as investors may be making way for RHB Islamic’s new issuance. In the government-guaranteed space, zero-coupon bonds Khazanah 2/21 and 7/18 were active although yields held steady at 4.38% (MYR45m) and 3.97% (MYR35m) respectively.

                                   

¨      RHB Islamic eyes MYR500m at ind. yield 5.00%-5.05%. On the primary front, RHB Islamic Bank (AA3/Sta) is set to issue T2 Basel III-compliant Sukuk from the MYR1bn Subordinated Sukuk Murabahah Programme at indicative yield of 5.00%-5.05%. The MYR500m 10NC2019 debts are expected to open for bookbuilding tomorrow, 30-Apr. Recently, we saw similarly-rated AmIslamic (AA3) sub-debt 3/24c19 issuing at 5.05% and 2/24c19 at 5.07% respectively; while Maybank Islamic (AA1) 4/24c19 issued at 4.75%.  

REGIONAL

¨      APAC credit yields widened; USTs broadened as FOMC begins two-day meeting tomorrow. The JACI Composite widened by 2.5bps to 257.0 led by the HY which increased by 4.2bps followed by the IG which widened by a lesser 2.2bps. Chinese credits ended around 2-4bps broader with trading on recently issued TENCNT 5/19 (+4bps to 3.351%) and across other TENCNT papers like 9/15, 2/17 and 3/18. HK also saw general yield broadening c.1-2bps with activity in papers such as WHARF 11/17, CHRAIL 2/23 and HKCGAS 8/18. Singapore saw concomitant yield movement c.1-3bps led by financials such as OCBCSP 37c17 (+17bps to 4.563%), DBSSP 37c17 (+12bps to 4.870%) and Temasek 7/42 (+4bps to 4.375%).  10y UST yields widened by 3.8bps to 2.70% as the Fed begins a two-day meeting tomorrow. The Fed is expected to maintain its policy rate unchanged while monthly buyback is expected to be cut by another USD10bn to USD45bn.10y UST yields are expected to outperform short term USTs as shorter term USTs are inclined to be impacted by imminent Fed rate increases while longer term USTs are benefiting from a lower inflation outlook.

¨      Lenovo printed a 5y USD REG S (NR) at T+320bps. Yanlord Land Group Limited printed its 3y SGD400m REG S (expected rating: Ba3/BB-) with final price of 6.2% (0.3% inside price guidance of 6.5%) and oversubscribed by over 12x. CLP Power HK Limited (A1/Sta;A/Neg;A/Neg) is proposing a subordinated USD500m REG S perpetual NC5.5 with initial guidance price of 4.25% while Shui On Development Ltd is planning to issue a USD REG S (NR) 4y and 6NC3 paper at guidance price of 8.75% and 9.75% respectively.

TRADE IDEA

¨      MYR: We reiterate potential value in GAR 8/18 (RAM: AA2/Sta). Since our last call on GAR 8/18 at 4.95% (see Credit Market Update published 11-Apr), we saw the bond has tightening 7bps in mid-Apr before widening back to close at 4.93% (as at 25-Apr). We continue to like GAR 8/18 (MGS+c.130bps) due to 1) our view that value can be extracted from mid-term duration papers as we expect to continue seeing flattening of the double A yield curve which mirrors the MGS trend which has seen shorter duration MGS rise by more than longer-duration MGS (3y MGS +c.13-16bps; 10y MGS +c.0-2bps) 2) healthy financials (debt-to-asset: 18.2% compared to industry average c.22.7%) with attractive operational metrics (OER: 22.7% compared to industry average c.22.0%) and 3) strong CPO price outlook in 2014 (projected to range between MYR2,600-3,000/MT).