FW: RHB FIC Credit Market Update - 19/9/14

19 September 2014

Credit Market Update

Chong Hing Priced AT1CS at 6.50%; Lock Profit on GEMAU 5/17 SGD

                                                                           

REGIONAL                      

¨      Mild selling activity across APAC credits. The JACI Composite saw marginal widening by 0.5bps (to 240.3bps) led by the IG by 0.7bps (to 173.0bps) while the HY saw tightening by -0.7bps (to 464.4bps). In the China IG space, we observed two-way flows on CNOOC and buying activity into GRNLHK and CHIOLIS. In HK, we saw investors offloading HUWHY and Bank/FI papers like CCB, ICBCAS and BNKEA. The SG USD market saw similar general profit taking activity. Treasuries stayed virtually unchanged as investors squared off their positions post the FOMC yesterday.

¨      In the APAC USD primaries, Chong Hing Bank Ltd (Baa2/NR/BBB) has priced its ATC1S at a final price of 6.5% (37.5bps inside initial guidance) while Honghua Group Ltd (B1/NR/BB) priced its maiden paper at 7.45%, tighter than initial guidance of high 7%.  

¨      Busy-week on primary front; SGD rates continued rising. SGD swap rates continued on upward momentum (+2bps to +5bps) over the week amid adjustment to the US Fed’s interest rate forecasts (median forecasts for end 2016: from 2.5% to 2.875%). Meanwhile, we saw stronger-than-expected economic data in Singapore this week, such as retails sales (actual: 5.5% vs consensus: 3.5%) and non-oil domestic exports (actual 6.0%; consensus: 2.5%) although effects on the SGD rates were marginal. In the credit space, focus was on primaries as activities recovered this week with a total of c.SGD1.4bn priced (vs 3-week average supply: c.SGD550m). Notable issuances include FCL’s (NR) SGD600m Pnc5 at 4.88%, HDB’s (NR) SGD500m 5y at 2.288%, and China Coal Solution’s (NR) SGD180m 2y at 7.50%. Going forward, we expect the string of Fedspeaks next week to be the primary market movers, which are expected to echo Yellen’s view in the FOMC to maintain interest rates for a considerable time.

MALAYSIA

¨      Corporate space active; OPR stayed at 3.25%. Local corporate activities doubled to MYR432m (Wednesday: MYR208m), fueled by large transactions of MYR105m (24% of total trades) on newly issued BPMB 9/29 closing at 4.741% (-0.8bps). Other than GG papers, investors were keen on long-dated infrastructure bonds such as TNBWE 1/28-1/30 (combined MYR60m, 4.889-5.000%, flat to +0.3bps), PLUS 1/27 (MYR35m, 4.730%, +9.6bps) and SarawakHidro 10/28 (MYR30m, 4.691%, -0.8bps). Meanwhile, MGS market volume was dull at MYR691m (YTD daily average: c. MYR1.3bn) before BNM maintained the OPR at 3.25% late yesterday. We saw buying bias across the MGS benchmark with 5y, 7y and 10y (decreased by 1.8-3.5bps) outperformed the 2y, 20y and 30y (reduced by 0.3-0.8bps). MYR2bn 30y-MGS set to reopen on next Monday (22-Sep) with the WI last done at 4.68%.

TRADE IDEA: SGD

Bond(s)	G8 Education; GEMAU 5/17 (ytm: 4.33%; T+308bps) (NR)
Comparable(s)	N/A
Relative Value	We prefer to lock-in some profit on SGD paper GEMAU 5/17 which was mooted in our Credit Market Update (dated 12-May) after gaining by c.32bps since then, with return at 2.32%.
Fundamentals	We opine that G8 Education is a robust company as it has: 1.     Strong growth potential. G8 Education is the second largest childcare operator in Australia with a 4.5% market share, implying growth potential 2.     Low counterparty risk. G8 Education faces lower counterparty credit risk due to prepayments and the fact that child care operators in Australia receive subsidies from the government of Australia 3.     Consistent and stable financials. Decent financial profile with FY2013 financial indicators such as ROA at 8.2% (2012: 7.8%); EBITDA/ Interest Expense at 10.9x (2012: 12.1x) and Total Debt/ Total Assets at 0.24x (2012: 0.18x).

CREDIT BRIEF

Company/ Issuer	Sector	Country	Update	Impact
Bank of Communications (BOCOM)	Banking	CN	Fitch has rated BOCOM’s upcoming and first-time B3T2 offshore issues (USD and EUR) at an expected rating of BBB+/Sta, two notches below BOCOM’s issuer default rating of A/Sta. Under the notes structure, the bank will have the option, upon obtaining consent of the China Banking Regulatory Commission (CBRC), to redeem the US dollar tranche in full at the end of the fifth year or the euro tranche in full at the end of the seventh year; the notes also come with a regulatory call option. PONV occurs when the CBRC decides a write-off is necessary or a relevant authority decides a public-sector injection of capital or equivalent support is necessary to maintain the bank's viability. Any potential write-downs of principal and unpaid interest will be in full and permanent.	Neutral. Sizes of the USD and EUR subdebt to be determined.