FW: RHB FIC Credit Market Update - 3/10/14

3 October 2014

Credit Market Update

Better Buying Seen in ASEAN USD Credits; Value in New SGD SUNHUN

REGIONAL                   

¨      Some buying interest seen but overall APAC sentiment remains risk-off. USD credits were better bid across SG and MY particularly at the short-end, such as UOBSP senior 17 and BOCAVI 17. Meanwhile, we also saw interest on TH bonds across the curve on O&G and bank names like PTTGC 22 and KTB sub-debt 24c19. We expect activities in Asia to see some rebound as HK markets reopens following a 2-day holiday, while China, India and South Korea markets will be closed for holidays today. JACI spreads added 4-6bps while iTraxx AxJ was a tad higher (+1.5bps) amid volatile UST movements and tense pro-democracy situation in HK. The UST curve saw long-end yields rising 3-5bps as jobless claims unexpectedly fell, although mitigated by weak factory orders. We expect a firm NFP rebound tonight, which may push UST yields up. 

¨      SGD swaps gain on better SG PMI; Quieter trading as HK/China out. 3y and 5y SGD swap rates tightened by 4-5bps, bucking the widening in Treasuries as SG Sept PMI numbers improved to 50.5 (previous: 49.7). This reversed last month’s contraction, which was the first reading below 50.0 since Dec-2013. The SG market continued to trade softer as HK and China we on holiday yesterday, with HK markets resuming today. Interest from investors was seen in Perps such as UOBSP, MAPLSP, SCISP. In the SGD primaries, Tuan Sing Ltd printed its SGD80m 5y at 4.5%, 25bps inside initial guidance.

MALAYSIA

¨      MGS curve continue to flatten amid stronger Ringgit; BPMB led corporate space. Strong activity of MYR2.9bn in the local govies space yesterday with buying interest heavily focused on 10y-GII (-0.9bps, 4.131%, MYR1.58bn). We continue to see flattening of the MGS curve with the mid-to-long tenures outperforming shorter-tenured MGS amid the Ringgit strengthening to 3.254 following the reduction in fuel subsidies. At close, 7y, 10y and 30y-MGS were the gainers with yield edged down 0.5-1.2bps to 3.798% (MYR90m), 3.871% (MYR155m) and 4.694% (MYR91m); whereas 3y-MGS broaden 0.9bps to 3.458% (MYR8m). Meanwhile, corporate credit activity improved 33% to MYR602m (Wednesday: MYR454m) fueled by GG BPMB 9/34 (MYR240m) which tightened 2.9bps to end the day at 4.820% (MGS+52bps). Also seen were AAA-rated Aman 5/21 (+0.3bps, 4.352%, MYR40m) and SME Bank 3/19 (-1.7bps, 3.963%, MYR30m). Overall, trading activity was skewed towards long-dated bonds.        

TRADE IDEA: SGD

Bond(s)	Sun Hung Kai Properties Ltd, SUNHUN 5/21 (yield: 3.02%; SOR+84bps) (-/A+/-)
Comparable(s)	Capitaland Ltd, CAPLSP 6/20 (yield: 2.74%; SOR+74bps) (-/-/-)
Relative Value	We initiate a preference for SGD SUNHUN 5/21 which seems attractive compared to CAPLSP 6/20, providing a potential pick-up of around 15-20bps by adding a duration of 1 year and getting a considerably stronger credit profile.
Fundamentals	We like the inaugural SGD SUNHUN 5/21 as:  1)     Sun Hung Kai exhibits robust and strong fundamentals. Sun Hung Kai has a strong financial profile if compared to Capitaland, with LTM Total Debt/ EBITDA at 3.2x (Capitaland: 27.3x) and EBITDA Interest Coverage at 10.4x (Capitaland: 1.2x). This should enable Sun Hung Kai to comfortably ride through the dampness in the HK property market. 2)     Singapore’s property market expected to be sluggish in the near term. 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. Sun Hung Kai has less exposure to the Singaporean property sales and rental market (SG: 2%; HK: 69%: China; 29%). Expected to ride through recent HK unrest. The recent HK unrest has seen sellers in HK property names, but we opine that this unrest will not prolong and become widespread.

CREDIT BRIEF

Company/ Issuer	Sector	Country	Update	Impact
PT XL Axiata Tbk (XL)	Telcos	ID	66.5%-owned subsidiary of Axiata Group Berhad, XL, had on 30-Sep 14 entered into an agreement with PT Solusi Tunas Pratama Tbk (STP) for the disposal of 3,500 telecommunication towers for a consideration of IDR5.6trn (USD460.5m). XL’s rationale for the transaction is to outsource passive infrastructure and to reduce its debt. The transaction is expected to be completed by the end of 2014.  XL and STP have also entered into a leasing agreement whereby XL leases the sold towers from STP for a period of 10 years with an option to renew; the agreement represents a flat lease without any escalation of costs.	Positive. Complete allocation of the proceeds to debt repayment should lower XL’s respective 2Q14 debt/EBITDA and debt/equity ratios of 3.54x and 2.32x to pro-forma levels of 2.89x and 1.89x. The leasing agreement is also credit positive for XL as it entails favourable locked-in lease rates.