FW: RHB FIC Credit Market Update - 10/7/14

10 July 2014

Credit Market Update

FOMC on the Fence 

REGIONAL                      

¨      Asian credits may see support today following neutral FOMC minutes. JACI Composite spread rose 3.0bps (234.8bps), with IG and HY both widening 2.6bps (169.2bps) and 4.7bps (454.0bps) respectively. In the Asian USD credit market, yield performance was generally mixed as investors grew cautious prior to the FOMC minutes release. Notably, SUNHUN 16 and SWIPRO 22 widened a couple of bps yesterday before retracing a tad tighter this morning. Meanwhile, US Treasuries rallied at the short- to mid-end (+2bps) as FOMC minutes remained benign while revealing members’ preference to end tapering in October should economic conditions allow.

¨      Fair activity in SGD credits continues. SGD swap rates yesterday were marginally wider at the belly by 1bp at most, while the longer-end 15-30y rates ended 1.5bps tighter consistent with the UST 10y rates advancing overnight. In the secondary credit space, we noted activity in VTB, SUNHUN, EZRA, DBSSP and CALPSP amid slower primary activity.

MALAYSIA

¨      Huge trades on Sabah Development (SabahDev) and Cagamas. MYR PDS market registered strong flows of MYR937m amid the MPC meeting to be held late today. We view OPR adjustment, if any could be delayed to Sept or November meeting, despite foreign investors’ expectation for a 25bps hike today after series of strong data (1Q GDP, CPI and Trade Balance). Overall, trading activities were active on financial and GRE names. SabahDev 7/14 and Cagamas 5/16 fueled the trading volumes with combined volumes of MYR380m where SabahDev widen by 1bp to 3.74% (since 4-July) while Cagamas 5/16 ended at 3.79% (+10bps since 22-Apr). Other notable names were DanaInfra 4/21 saw MYR60m done at 4.35% tighten 1bp since 8-July; and Prasarana 9/27 dropped by 12bps since 19-Dec-13 to close at 4.71% on MYR60m transactions.

TRADE IDEA: MYR

Bond	Tanjung Bin Power 8/19 (AA2) (price: 99.12; yield: 4.73%; spread: MGS+c.103bps)
Comparable(s)	Encorp 11/18 (AA2) (price: 100.44; yield: 4.36%; MGS+c.67bps) Imtiaz II 3/19 (AA2) (price: 99.98; yield: 4.60%; MGS+c.90.7bps)
Relative Value	We reiterate our 4-Jul call for Tanjung Bin Power 8/19 which remains attractive against a similarly-rated, Encorp 11/18, in terms of a yield and spread pickup of c.22bps and c.30bps respectively, after adjustment for duration differential.
Fundamentals	1)     High cash flow visibility from long-term contract, with Tenaga Nasional Berhad, which expires on 27 September 2031 as well as favourable contractual terms. Tanjung Bin Power is an independent power producer granted the right to construct, own and operate a 2,100MW coal-fired power plant in Tanjung Bin, Johor under a Power Purchase Agreement with Tenaga Nasional Berhad. 2)     Maintains a firm credit profile with operational issues from prolonged operation at maximum capacity resolved. Tanjung Bin Power’s credit metrics are also healthy, reflected by a finance service coverage ratio of 2.7x for the FY13 (FY12: 1.3x) despite available capacity payment losses and daily utilization payments suffered in FY13 (accounting for 22% of total potential revenue) due to operational issues.