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

14 October 2014

Credit Market Update

Agile Downgrade Stirs HY Market; City Development SGD Retap; Inactive MYR Credit Post-Budget; Value in ANZ 3/24 B3T2

REGIONAL                   

¨      HY underperformance set to continue as Agile dragged Chinese credits; CDS jumped closer to 5-month high. US bond markets was closed overnight for Columbus Day. In the USD credit space, we continued to see yields edging lower across SG, MY, TH and HK on papers such as HUWHY 33, BOCAVI 17 and TOPTB 15 while CN credits suffered upward yield pressure on better trade numbers and Agile's struggles for refinancing which dragged property names. The detainment of Agile’s Chairman has caused a stir in the industry, as the company battles with industry slowdown, liquidity pressure which led to two-notch downgrade by Moody’s on Friday to B1 on its unsecured debt. The iTraxx AxJ rose further by 2bps to 119bps, inching towards 5-month high of 122bps. Looking ahead, investors may be looking at German ZEW survey and China's new Yuan loans data amid the lack of significant US data tonight. On the primary front, Energy Earth (NR) is reportedly pulling out its debut CNH bond offering on the back of poor market sentiment at this juncture. Meanwhile, Bank of China (A1/A/A) will be completing roadshows for Asia's first B3 AT1 with planned size of up to USD6.5bn. 

¨      Two-way flows ahead of lacklustre SG Q3 GDP numbers. Strong tightening was seen in SGD swap rates, as both the 3y and 5y SOR narrowed to 1.1% (-5.2bps) and 1.7% (-4.6bps) while the 3y/5y marginally widened by +0.6bps (to 57.1bps) as investors took cue from the Fed Vice Chairman’s concern about growth outside the US and a corresponding possible longer accommodative rates environment. There were generally balanced flows across credits yesterday though we observed profit-taking on HDBSP papers (due to speculation of possible slower Q3 construction growth) ahead of the Q3 GDP announcement this morning. The GDP results surprised the market with slower-than-expected growth, coming in at 2.4% (consensus: 2.7%; 2Q: 2.4%) driven by dampness in the construction and manufacturing sector. As widely expected, MAS maintained its monetary policy. In the primaries, AusGroup Ltd (NR) printed its SGD110m 2y at a final price of 7.45% while City Developments (NR) retap the market with an additional SGD40m from the existing SGD100m CITSP 10/24 that is priced at par 3.78%. KS Energy (NR) is currently meeting investors for a planned SGD issuance.

MALAYSIA

¨      PDS market moved sideways; buying interest in 10y govies benchmark. The PDS market was dull on MYR358m activity amid strong govies flow of MYR3.6bn before the reopening of MYR2.5bn 15y-MGS tomorrow. Investors were seen focused in mid-duration bonds with UEM leading the pack with MYR110m reportedly transacted. UEM 12/18 and 6/19 closing flat at 4.428% (MYR60m) and 4.497% (MYR40m) respectively while UEM 6/21 tighten 1bps to 4.678% (MYR10m). Yield on the corporate space generally moved sideways. Meanwhile on MGS/GII market, transactions were highly concentrated in the 10y benchmark. Buying bias were seen in the 10y-GII and MGS where yield settling lower at 4.117% (-0.4bps, MYR1.39bn) and 3.828% (-1.3bps, MYR770m) respectively. Overall, MGS prices surged as yield came down 1-3bps on a flattening bias following Budget 2015 and falling UST yield.

TRADE IDEA: USD

Bond(s)	ANZ B3T2 3/24 (BBB+/ A3/ A+) (Price: 103.04, yield: 4.11%, z-spread+183bps)
Comparable(s)	OCBC B3T2 6/24 (BBB+/ A3/ A+) ( Price: 102.18, yield: 3.98%, z-spread+167bps) ANZ B2T2 8/22c17 (A-/ A2/ A+) ( Price: 103.52, yield: 2.15%, z-spread+116bps)
Relative Value	We see value in ANZ B3T2 3/24 for a pick-up of 16bps over similar rating OCBC B3T2 6/24.  In addition, ANZ B3T2 3/24 also offer an attractive PONV premium of c.40-45bps over its B2T2.
Fundamentals	Fundamentally, both ANZ and OCBC possesses a healthy credit profile: 1)     Strong domestic market shares of approximately 21% (OCBC 15%); 2)     Sufficiently capitalized with a tier-1 capital ratio of 12.6% and 14.5% (OCBC: 14.7%, 17.4%); 3)     Healthy asset quality and robust coverage, reflected by an NPL ratio of 0.7% and LLC of 119% (OCBC: 0.7%, 149%) *all data  for ANZ as of Mar-14; OCBC as of Jun-14

CREDIT BRIEF

Company/ Issuer	Sector	Country	Update	Impact
Telekom Malaysia (TM)	Telcos	MY	Government is planning to invest MYR2.7bn to further expand Malaysia’s high speed broadband (HSBB) network. The amount will be spent over the next 3 years to fund the construction of 1,000 new telecommunication towers and the laying of undersea cables. Implementation is expected to cover high economic impact areas, including state capitals and selected major towns nationwide.	Neutral. At this point, we are uncertain of the balance sheet impact on TM by the new projects. While the investment potentially bodes well for TM as it should benefit the operator’s broadband and global and wholesale businesses, we maintain a neutral stance on the resulting profitability from the 3y investment period. Assuming the investment in its first year is MYR900m and fully debt-funded by TM, this would constitute 40.9% of its capex guidance and raise its gearing to 1.00x from 0.88x as at end Dec-13.
Bank of China	Banking	CN	The bank announced that the planned AT1Cs will likely be settled in USD and/or EUR. It will feature a CET1 trigger of 5.125% and equity conversion into the bank’s H-Shares. Nonetheless, is not eligible for JACI and CEMBI Index.	Neutral. Demand was reportedly strong with over USD17bn indication of interest received in view of support from Chinese government. Indicative level for the instrument is whispered at hi-6% to low 7%.