FW: RHB FIC Credit Market Update - 3/9/14

3 September 2014

Credit Market Update

Net Selling in APAC Credits Pre-NFP; Maintain Call on SUNHUN 24c19

REGIONAL                      

¨      Net selling in APAC credits as investors lighten positions ahead of NFP. The JACI Composite widened by 2.7bps (to 245.4bps) led by the IG with 4.2bps (to 177.8bps) while the HY saw a tightening of -1.7bps (to 471.4bps). In the China IG space, we saw general yield widening led by selling in CNOOC and CHGRID. In HK, papers generally traded a couple of bps wider led by HUWHY, CHINLP, SUNHUN while the SG market saw investors profit-taking on TEMASE papers. USTs widened yesterday, led by the 10y with 7.8bps (to 2.42%) while the 2y broadened by 3.6bps (to 0.52%) as the US ISM Manufacturing Aug data registered above expectations (actual: 59.0; expected: 56.8). Nevertheless, investors are keenly awaiting the ECB interest rate decision which will be announced tomorrow.

¨      On the primary front, China Taiping Insurance Holdings (NR/BBB+/A-) printed USD600m Pnc5 at 5.45% (42.5bps inside initial guidance), while National Savings Bank (NR/B+/BB-) priced its USD250m 5y Senior at 5.15%.

¨      Better buying in SGD credits ahead of disappointing PMI data. Yesterday, SGD swap rates saw general widening of 1.6-4bps beyond the front end of the curve as USTs retreated overnight on better US manufacturing numbers. Meanwhile, Singapore’s PMI dropped to 49.7 in August from 51.5 in July due to broad contraction in new orders, export orders and production output. Over in the credit space, we saw better buying in short-end names including CWTSP and HIAPSP. In addition, there was buying bias in bank names like UOBSP and MAYMK.

MALAYSIA

¨      Corporate bonds continue on low-key mode. Local credit remained quiet on MYR262m trading volumes as yields for top traded bonds inched lower. Active trades included long-dated Encorp 11/25-5/28 on MYR80m combined transactions. Both Encorp 11/25 and 5/28 narrowed 18bps to 5.01% and 5.2% respectively, while Encorp 11/26 closing at 5.11% (24bps lower than coupon) on its debut trade and Encorp 11/27 realigned 47bps upward to 5.17% (since July-13). Putrajaya 7/18 tightened 12.8bps to 3.97% on MYR40m traded. Meanwhile, CTX 8/19 saw MYR30m traded, recovering to 4.322% (-2.5bps) from 4.347% last Friday.

TRADE IDEA: USD

Bond	SUNHUN 24c19 (ytm: 3.37%; T+174bps) (A1/A+/A)
Comparable(s)	WHARF 1/19 (ytm: 3.04%; T+130bps) (A-)
Relative Value	We reiterate our preference for SUNHUN 24c19 that has gained 6bps since we first featured it in our Credit Market Update (dated 20-Feb-2014). Taking into account a one notch difference in rating with WHARF 1/19, we opine that SUNHUN still has a potential pick-up of around 10-15bps.
Fundamentals	We opine that Sun Hung Kai is an attractive proposition given: 1.     Its strong ability to weather a slowdown in the Hong Kong Property market. Credit metrics are more fundamentally sound compared to its HK property peers with Total Debt/ EBITDA at 3.4x (peers: 5.8x) and EBITDA Interest Coverage at 9.33x (peers: 4.48x). 2.     Strong rental income: As of 1HFY6/2014, rental income comprised around 36% of Sun Hung Kai’s total revenue. This would ensure better insulation (compared to property development sales) against the slowing property market in Hong Kong. 3.     Minimal impact from the Kwok brothers’ case. The criminal charges brought against the Kwok brothers (co-chairmen in Sun Hun Kai Properties) in May 2014 are expected to conclude before year end. Due to the established nature of company, we expect minimal impact to the repayment capability of Sun Hung Kai. Nevertheless, key risks arise if prosecutors decide to charge the company. Property peers: Cheung Kong Holdings Ltd, Kerry Properties Ltd, Swire Pacific Ltd, The Wharf Ltd, Henderson Land Ltd, New World Development Ltd, Agile Property Hldg Ltd)

CREDIT BRIEF

Company/ Issuer	Sector	Country	Update	Impact
Bumi Armada	O&G	MY	Printed MYR1.5bn (NR, 10y, 6.35%).	Neutral. The recent right issue will enlarge the capital base by c. MYR1.99bn, hence we expect gearing ratio including the new debt to maintain at around 1 time on pro-forma basis. The proceeds from the right issue and bond are to fund the capex requirement of estimated USD1.5bn for its Angola FPSO contract. Order book is strong at MYR21.7bn (with an option to extend another MYR11.6bn).
EXIM Bank Malaysia	Quasi-bank	MY	Eyeing USD300m Sukuk from existing USD1.0bn Multi-Currency Programme	Neutral. Credit to stay supported by its 99.9% shareholding by Minister of Finance (Inc) which indicates very strong linkage with government and superior likelihood of support, which mirrors Malaysia’s sovereign rating of A3/A-/A-.