FW: RHB FIC Credit Market Update - 11/7/14

11 July 2014

Credit Market Update

Dovish Fedspeaks and Europe Banking Concerns Spark Risk Aversion

REGIONAL                      

¨      Better buying on Asian bonds. JACI spreads were rather mixed with minimal movements as the IG spread closed marginally tighter at 168.1bps (-1.1bps) while the HY spread moved sideways at 454.5bps (+0.4bps). Meanwhile, absolute yields headed south on most papers particularly at the short-end amid safe haven demand, overshadowing China’s firm export growth in June. In the China/HK IG USD space, yields traded tighter on BRTFOD 18, YUEXIU 18 and CINDBK 20 while in the Singapore USD space, OCBCSP 15 senior and UOB 17 senior similarly rallied. Meanwhile, yields on US Treasuries inched lower (-1bp to -2bps) across broad durations as Fedspeaks and European banking worries sparked risk aversion.

¨      Mixed activity for SGD bonds. SGD swap rates yesterday ended 3-5bps tighter past the belly, in line with UST rates tightening overnight. In the secondary credit space, there continued to be mixed activity, particularly for financial names like UOBSP and DBSSP. In addition, familiar corporate perps including GENSSP resurfaced. On the primary front, Otto Marine Ltd (NR) is planning investor meetings commencing 14-Jul on a possible SGD issuance. In addition, Perisai Capital (L) Inc. (NR) is re-opening its 6.875% 2016 SGD notes, tap size to be confirmed.

MALAYSIA

¨      MYR PDS generally range-bound. Secondary PDS registered the lowest trading volumes of the week with MYR360m transactions. We saw activities mostly centered on financial names such as Maybank oldstyle-T2 5/24c19 on MYR60m trades tighten by 2bps (since 19-June) to 4.46%; and RHB oldstyle-T2 5/22c17 closing at 4.53% (-5bps since 26-June) with MYR30m volumes. Top movements were Sime Darby 11/16 saw MYR50m done to widen by 9bps since 3-June to 3.85%. Meanwhile, BNM announced the first hike of OPR since May-2011 to 3.25% yesterday, in line with the consensus to re-anchor inflation expectations.

TRADE IDEA: MYR

Bond	Media Chinese International Limited (MCIL) 2/19 (RAM: AA1) (Price:100.86; Yield: 4.59%; MGS+c.89bps)
Comparable(s)	Star Publications (Starpub) 5/18 (RAM: AA1) (Price: 101.81; Yield: 4.28%; MGS+c.58bps)
Relative Value	We reiterate our call to switch from Starpub 5/18 to MCIL 2/19 for pick up value of c. 23bps, after adjusting for duration differential. Compare BNM 5y AA1 curve, MCIL 2/19 has been priced above the curve by 22bps. We believe the yield differential is overdone given MCIL’s strong fundamental.
Fundamentals	We opine that MCIL should remain strong in the near to medium-term given its domination of the Malaysian Chinese language newspaper segment alongside its high share of advertising expenditure of c.70% since 2009. Financially, MCIL is supported by its stable cash generation capability, sturdy balance sheet with low gearing of c.0.6x and strong debt-to-EBITDA of 1.7x in FYE14.