FW: RHB FIC Credit Market Update - 13/6/14

13 June 2014

Credit Market Update

Attention on USTs on 30y Auction Amid Iraqi Tensions; Bullish HY Appetite Persists

REGIONAL                      

¨   Credits saw mixed movements; HY spreads tightened further. The JACI Composite Spread was unchanged as movements remain mixed. The HY space narrowed 3bps further (to 466.6bps) in a 2-week long tightening although some investors have begun taking profit. The IG spreads ended marginally wider yesterday (+1bp to 169.4bps), having moved range bound over the week. In the secondary market, HK/China IG USD space saw mixed performance tilting towards higher yields. HUWHY ’22 traded 3bps wider (to 3.605%) while yield on CNPCCH ’19 similarly expanded (+3bps to 2.817%). In the Singapore IG USD space, papers generally moved sideways amid light trades; CAPITA ’18 traded unchanged at 2.287% while DBSSP ’15 ended sideways at 0.395%. Meanwhile, USTs yields declined on the mid- to long-end (-1bp to -5bps) thanks to a strong USD13bn 30y auction and safe haven demand amid tensions in Iraq. US PPI and Uni of Michigan Confidence will be released tonight, which may point towards improving sentiment.

¨   Al Baraka Turk Katilim Bankasi A.S. (BB/neg) has hired banks to arrange fixed income investor meetings in Asia, Europe and Middle East. A USD senior unsecured sukuk may follow, subject to market conditions. OCBC issued Basel III-compliant note of USD1bn 4.25% 10y bullet T2 bond (A2/neg; BBB+/A+; sta) at T+175bps, c.15bps inside the initial guidance of 190bps area. Meanwhile, Goodman HK Logistics (BBB+/sta) sold 10y 4.375% USD400m bonds at T+180bps, c.20bps inside price guidance of T+200bps.

    

¨   Duration cutting while short-dated interest persists. Average yields ended a tad softer. SGD swap rates closed tighter aligning with overnight UST retracements. While the SGD primary front remains quiet, we continued to see selling bias in long-dated names, where WSTP ’25 widened the most by 9.6bps to 3.84%; followed by TEMASE ’39 and ’29, which saw yields increase 4.1bps and 3.7bps to 3.93% and 3.64% respectively; and SPSP ’24, retreating 3.4bps wider to 3.29%. Toward the short end of the curve, VTB ’15 gained the most by narrowing 35.3bps to 3.17% and recovering to a price level of 100.88 which it last held in early March. This was accompanied by buying bias in China real estate names, YLLGSP ’17, which tightened 13.3bps to 5.18%, and CENCHI ’16, which compressed by 15.7bps to 5.79% amid the Singapore government’s announcement on decreased developable land for residential properties. Meanwhile, on Singapore’s 1Q unemployment rate of 2.0% (previous: 1.8%) released today, we expect the small increase not to weigh significantly on credit sentiment; this is on top of hints of higher job search activity accounting for the increase.        

MALAYSIA

¨   BGSM active on MYR market. Yesterday we saw strong activity in the PDS market where total trading volume increased to MYR757m (previous: MYR237m). Meanwhile, selling bias was seen in BGSM 12/22 adding +16bps (since 26-May) to close at 5.45% on MYR270m in transactions; along with Cagamas 11/14 and Cagamas 10/16 on combined volumes of MYR68m as both widened to 3.46% (+11bps since 26-May) and 3.85% (+20bps since 10-Feb), respectively. We also noted strong interest in AAA-rated papers like HCS 5/15, which marginally tightened 1bp (since 3-June) to 3.98%, and the longer-dated TNBWE 1/30, closing 6bps narrower (since 27-May) at 5.19%.

                                                                     

TRADE IDEA: SGD

Bond	NCLSP 11/15 (ytm: 3.46%; SOR+c.300bps) (NR)
Comparable(s)	EZISP 5/15 (ytm: 2.34%; SOR+c.170bps) (NR)
Relative Value	We see value for a switch from EZISP 5/15 to NCLSP 11/15 for a pick-up of over 100bps and duration extension of 6 months.
Fundamentals	Both companies are fundamentally strong in our SGD offshore support vessel (OSV) space, though Nam Cheong has exhibited slightly stronger financials. For FY1Q2014, Nam Cheong has better leverage ratios with Debt/Assets at 39% (Ezion: 53%); short-term liquidity with Cash Ratio at 0.58x (Ezion: 0.44x) and better ROA at 11.9% (Ezion: 8.5%). We are positive on the OSV market due to resilient oil prices which we project to be between USD100-110/bbl in 2014 as well as OSV/rig ratio of 3.3x (excluding aged vessels >25 years), which is below the global equilibrium of 3.8-4.0x.