FW: RHB FIC Credit Market Update - 9/10/14

9 October 2014

Credit Market Update

APAC Credits Stable amid Dovish FOMC; Take Profit in OCBCSP 23c18 B2 LT2

REGIONAL                   

¨      Credits to gain on dovish FOMC minutes. The FOMC minutes are likely to trigger supports for credits today following an overnight UST rally. The committee showed concerns that an overly strong USD given Eurozone weakness may hamper US growth and inflation. Further, considerable time reference may have been misunderstood as a commitment, rather than being data-dependent. We think that this game-changing catalyst could be well reflected in today's session as investors may ease timeframe expectations of the US rate hike. In the USD credit space yesterday, we saw better buying in TH and MY while mixed flows in the SG and HK/China space. Buying interest were focused on the short- to mid-end such as SCBTB 16, CINDBK subdebt 22c17 and OCBCSP subdebt 24 while long papers such as CNOOC 43 and CHIOLI 42 rose a couple of bps. Meanwhile, the new KEB 24 B3 T2 performed well, trading c.5bps tighter. JACI spreads were a tad wider, with IG and HY space closing at 181bps (+1bp) and 500bps (+1bp) respectively. The iTraxx AxJ was up 4bps to 118bps. 

¨      On the USD primary front, Korea Water Resources (A1/A+/AA-) has successfully printed USD300m 3.5y at T+107.5bps, well inside initial guidance of T+125bps. In the pipeline, we see pent-up supply from China as Greenland Holding (Baa3/BBB/BBB-) is making USD benchmark 3y bond offering at T+300bps while Agricultural Bank of China (ABC) (A1/A/A) has announced a deal of USD300m 3y at T+160bps.

¨      Demand observed in property and REIT names. Yesterday’s SGD swap rates ended lower, with the 3y and 5y narrowing by around -3.4bps, with the 3y/5y staying virtually unchanged at c.57bps, in line with global safe-haven flows post lackluster IMF global growth projections. We observed general balanced flows across the SGD markets, though with discernable buying into established property papers with exposure to the HK property market such as CHEUNG and HKLSP as the HK unrest peters down peacefully. Demand interest was also seen in REITs like CCTSP and FCTSP. United Energy Group (NR) is pricing its 2y at initial guidance of 7% while Chip Eng Seng Corp (NR) is pricing its 3y at initial price of 4.5%. Swissco Holdings (NR) priced its SGD100m 3.5y at final price of 5.7% (BTC around 10x), 30bps inside initial guidance.

MALAYSIA

¨      PDS focused on bank senior and old-style subdebt; Strong demand for 7y-SPK reopening. Top traded banks ended the day on positive tone. Notably, AMMB Holdings Senior 8/17 tighten by 1.6bps to 4.544% on MYR90m transactions, OCBC B2T2 11/21c16 closing lower at 4.12% (-3bps, MYR70m) and AISL B2T2 1/22c17 saw MYR20m exchange hands inched 2.3bps lower to 4.168%. Also seen were PASB 6/19 led the volume chart closing near to previous level at 3.982% (-0.4bps, MGS+29bps, MYR100m). Overall, total activities on the corporate space were moderate at MYR400m with interest skewing towards mid-duration papers. Meanwhile, 7y, 10y and 30y-MGS benchmark closed flat to 1bps higher at 3.809% (MYR76m), 3.864% (MYR20m) and 4.689% (MYR61m). Local govies traded modestly on MYR1.1bn volumes amid the reopening of MYR3.4bn of 7y-SPK (MYR2bn on private placement) with decent BTC ratio of 2.85x (Average: 4.129%; Highs: 4.150%; Lows: 4.121%).     

TRADE IDEA: USD

Bond(s)	Oversea-Chinese Banking Corporation Limited (OCBC or OCBCSP) OCBCSP 3.15% 23c18 B2 LT2 (A2/BBB+/A+; all stable) (price: 101.82; ytc: 2.59%; Z+131bps)
Comparable(s)	OCBCSP 4% 24c19 B3T2 (price: 102.44; ytc: 3.46%; Z+174bps) OCBCSP 4.25% 24 B3T2 (price: 101.73; ytm: 4.03%; Z+164bps)
Relative Value	We suggest taking profit on OCBCSP 23c18 (initial call on 11-Feb 14) as we think the bond has rallied sufficiently and now appears less attractive against the existing new-style T2 comparable. We close out this position to take out 195 price points for a total return of 3.85%.
Fundamentals	We continue to like OCBC for the following key factors: 1)     Second-largest bank in Singapore, with 15% and 17% shares of system loans and deposits respectively. 2)     Strong insurance businesses in both Singapore and Malaysia via Great Eastern Holdings Ltd; 3)     High asset quality at a current NPL of 0.73% (30-Jun 14), which has outperformed local peers (industry NPL: 1.03%); 4)     Robust capitalization and sound liquidity as evidenced by a Tier 1 ratio of 14.70% and loan-to-deposit ratio of 88.14%; and 5)     High likelihood of systemic support, based on its significant size and scale.

CREDIT BRIEF

Company/ Issuer	Sector	Country	Update	Impact
Kesas	Toll Roads	MY	Printed MYR735m IMTN (AA2) (2-9y: 4.2%-4.85%).	Neutral. Proceed is mainly to refinance the existing BaiDS (MYR100m), loan stock (MYR485m) and government support loans (MYR108m). Debt repayment profiles remain supported by its strong traffic performance with ADT of 310k. Kesas expected to generate more than MYR200m OCF during the tenure of the Sukuk (vs. annual debt obligation of MYR100-125m).