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

10 October 2014

Credit Market Update

Chinese Credits Flooded USD Primary, Active SGD from New Offers, Ringgit Bonds Sideways Ahead of Budget

REGIONAL                   

¨      USD credits gained as investors turned risk-off. Yields on USD credits declined across Asia yesterday in reaction to dovish FOMC minutes and sluggish pace of global growth. Among the bonds traded, we saw HUWHY 22, WHARF 17 and OCBCSP 24 subdebt tightening a couple of bps. Strong buying activities in credits pulled JACI spreads lower in both IG and HY space to 183bps (-2bps) and 508bps (-2bps), alongside flattish USTs in the overnight session. On a macro view, we saw lower US jobless claims of 287k, beating consensus of 295k, which may have halted UST rallies. Looking forward, investors may be eyeing retail sales and PPI (15-Oct) which may point towards slower economy growth, before seeing firmer housing starts and Uni of Michigan confidence (17-Oct) towards end of next week. 

¨      On the primary front, Greenland Holding (Baa3/BBB/BBB-) has printed USD500m 3y at T+290bps, inside initial guidance T+300bps while Agricultural Bank of China (ABC) (A1/A/A) has printed USD300m 3y at T+135bps, well inside initial guidance of T+160bps area. In the pipeline, China's natural gas distributor ENN Energy (Baa3/BBB/BBB) is eyeing USD-denominated unsecured bonds with size and pricing to be determined through bookbuilding.

¨      Investors focused on deluge of SGD primary papers on Thurs. SGD swap rates tightened considerably yesterday in tandem with the Treasury rally post-FOMC minutes release, with the 3y and 5y narrowing to 1.13% (-5.7bps) and 1.69% (-6.5bps), while the 3y/5y fell by 0.9bps (to 56.4bps). Secondary flows traded a tad tighter, with buying observed especially in short-term SPSP and PSASP papers. Investors were mainly focused on SGD primaries, which saw SMRT Corp (AAA/-/-) price a SGD200m 3y at a final number of 1.388%, City Developments (NR) priced its SGD100m 10y at 3.78% (BTC around 2x), Chip Eng Seng Corp (NR) priced its SGD150m 2y at a final guidance of 4.25% (BTC around 4x) while United Energy Group (NR) printed a SGD100m 2y at a final price of 6.85% (15bps inside guidance).

MALAYSIA

¨      MGS gained ahead of Budget 2015; corporate credits remained focused in mid-duration names. Local govies ended the day on a positive tone with the MGS benchmark yield inched lower in general ahead of the Budget 2015 to be announced later today. Among the top performers were 5y, 7y and 10y-MGS closing at 3.669% (-2.8bps, MYR490m), 3.796% (-1.3bps, MYR362m) and 3.846% (-1.8bps, MYR160m). 10y-GII topped the volume chart trading near to previous level at 4.13% (-0.5bps) with MYR850m reportedly done. Overall, we saw strong flows of MYR3.3bn on the local govies amid the strengthening of the Ringgit to 3.255 (-0.63%) against the Greenback. Meanwhile, secondary trades on the PDS space remained lackluster at MYR372m compared to YTD daily average of c.MYR430m. Buyers remained heavy in mid-duration papers such as Manjung 11/19 broaden marginally to 4.167% (+0.4bps, MYR100m); HLFG 11/18 tighten 8bps to end at  4.497% (MYR60m); while BGSM 12/18 closed at 4.558% (-0.8bps, MYR30m).

TRADE IDEA: SGD

Bond(s)	City Developments Ltd, CITSP 4/23 (yield: 3.86%; outstanding - SGD150m; SOR+c.155bps) (NR)
Comparable(s)	CITSP 10y (final yield price: 3.78%; outstanding - SGD100m; SOR+146bps) (NR) Capitaland Ltd, CAPLSP 8/24 (yield: 3.71%; outstanding – SGD500m; SOR+131bps) (NR)
Relative Value	We prefer CITSP 4/23 which is currently trading at c3.86% relative to the newly printed CITSP 10y that was priced today at 3.78%. We opine that the off-benchmark CITSP 4/23 could provide a pick-up of around 10-15bps, ceteris paribus.
Fundamentals	We think City Developments possesses moderately robust fundamentals and is expected to weather through the slower SG property outlook, where prices have been sluggish over the past four quarters, with this trend expected to continue in the near term.   1)     The company exhibits moderate financial strength. City Developments exhibit marginally better strength compared to its peers*, with LTM EBITDA Interest Coverage at 8.6x (peers: 6.3x), though LTM Total Debt/ EBITDA is at 7.7x, marginally above its peers (7.5x). 2)     Expected to ride through sluggish SG property market. The 3Q2014 Singapore residential price index fell for the fourth continuous quarter (current: 208.1; previous: 209.4), with property prices expected to remain weak in Singapore. Nevertheless, Singapore’s top 3 developer (by market cap) has sufficient short-term liquidity to ride through any rough patches (Cash: SGD3.35bn; ST debt: SGD1.66bn).  *Peers:  Capitaland, Shimao Property, Swire Properties, Sun Hung Kai, UEM Sunrise, Lippo Karawaci

CREDIT BRIEF

Company/ Issuer	Sector	Country	Update	Impact
Sime Darby (SIMEMK)	Plantation	MY	Launched an offer for all outstanding shares in New Britain Palm Oil Limited (NBPOL) for GBP1.07bn (c.MYR5.6bn), to be funded via external debts (80%) and internally generated funds (20%)	Negative. Assuming c.MYR4.48bn to be raised from debt (80% of purchase consideration), SIMEMK’s gearing is expected to increase from 38% to c.51% post-transaction. Although we are positive on NBPOL’s low risk business model, the potential weaker credit metrics may lead to a downgrade from A to A- by S&P which has currently placed on CreditWatch Negative, in our opinion.