FW: RHB FIC Credit Market Update - 19/11/14

19 November 2014

Credit Market Update

Secondary Trades Eased on Greater APAC Supply Focus; Value in New NTPC 10-Year Issuance

REGIONAL                   

¨      Secondary trading eased on supply focus. Asian credit investors focused on new issues (eg CNPC) with a lack of catalyst yesterday. Sellers were seen in oil & gas names as investors made way for new CNPC 3y and 5y issues. China National Petroleum Corporation (CNPC) (Aa3/AA-/A+) has priced USD1.5bn across 3 tranches – USD500m 3y fixed at T+107.5bps, USD300m 3y floater at 3mL+89.5bps and USD700m 5y fixed at T+120bps. Elsewhere, we saw higher yields across the region on papers like STSP 31, TOPTB 15 and OGIMK 23. JACI IG and HY spreads inched tighter to 180bps (-1bp) and 504bps (-2bps) respectively. Credit protection costs remained rangebound as iTraxx AxJ closed lower at 105bps (-1bp). UST yields edged lower by 2bps (mid to long) ahead of the much awaited FOMC minutes tonight. In the pipeline, India’s NTPC (Baa3/BBB-/BBB-) is eyeing for a USD benchmark 10y notes offering at initial guidance of T+230bps area. Meanwhile, Bank of China (A1/A/A) may price USD 3y and 5y bonds at initial guidance of T+170bps and T+180bps area respectively today (total issue size capped at USD600m).

¨      Migration towards shorter-ended REITs. The short-to-mid SGD swap rates ended wider yesterday, with the 3y and 5y broadening by between 1.7-2.2bps to 1.13% and 1.71% respectively. We saw mixed activity in Bank/FI papers such as BCHINA and OCBCSP while the REITs space saw investors profit-taking on mid-to-long duration REITs (MLTSP & CREISP) while accumulating shorter-ended papers from CAPITA and FCTSP. In the primaries, Aspial Corp Ltd (NR) priced a SGD100m 4y at 5.5% while Sembcorp Industries Ltd (NR) is printing a 7y and 12y at initial price guidance of 3% and 3.7% respectively.

MALAYSIA

¨      Flattish local govies and PDS yield. Activity in the MGS/GII market rose 86% to MYR1.7bn over the previous day, registering above the YTD daily average of MYR1.57bn. Benchmark yields continued to move sideways amid the weakening of the Ringgit to 3.357 against the greenback. At the end of the day, 5y, 7y and 10y-MGS settled at 3.698% (+2.9bps, MYR233m), 3.776% (-0.2bps, MYR40m) and 3.868% (unchanged, MYR22m) respectively while the 10y-GII closed 0.5bps lower to 4.110%. Meanwhile, corporate bonds were thinly traded, with trading volume of MYR373m still below the YTD daily average of MYR441m. Top traded were long-dated SEB papers, which drew a combined trade volume of MYR150m. SEB 7/29 and 7/24 closed near their previous levels at 5.278% (-0.2bps) and 4.748% (-1.2bps) respectively. Other notable names included GREs like Rantau 8/19 and Khazanah 2/21, which edged marginally lower to 4.114% (-0.5bps, MYR65m) and 4.178% (-0.3bps, MYR35m) respectively. Malaysia is set to release the Oct CPI data this Friday (21-Nov) where the market expects higher inflation of 3.0% y-o-y compared to 2.6% in Sept.

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TRADE IDEA: USD

Bond(s)	NTPC 10y (Baa3/BBB-/BBB-) (initial guidance of T10+230bps)
Comparable(s)	NTPC 7/21 (Price: 109.7; Yield: 3.94%; T5+233bps) NTPC 10/22 (Price: 104.1; Yield: 4.14%; T7+211bps)   Power Grid Corp of India (PWGRIN) 1/23 (NR/BBB-/BBB-) (Price: 98.3; Yield: 4.12%; T7+210bps/T10+180bps)
Relative Value	NTPC’s guidance of T+230bps seems relatively loose vs its existing curve and peer PWGRIN 1/23 (T10+180bps). We see a fair value of c.200-210bps over Treasury for NTPC’s new issuance, taking into account maturity differences with its existing papers. We opine that the potential pick up value may be largely diminished upon guidance revision (c.20-25bps). Nevertheless, we still think it is a relatively attractive proposition for higher yield over PWGRIN 1/23 (T10+180bps), noting the 1y maturity difference.
Fundamentals	We are comfortable with NTPC based on the following factors: 1)     Largest power generating company in India, contributing c.25% of India’s total power generation; 2)     Favourable PPAs with comfortable rate of returns with distribution companies; and 3)      Highly prioritized within the industry in terms of fuel supply (coal from local miner, Coal India) and in terms of payment of payables owing to NTPC due to its dominant power generation position. We expect NTPC to continue to enjoy supply from local coal companies and hence, less affected by higher imported coal prices vs peers.

CREDIT BRIEF

Company/Issuer	Sector	Country	Update	RHBFIC View
CIMB Group (AA1)	Banks/FIs	MY	YTD NP -17% to MYR2.9bn mainly due to higher loan impairment allowances for its Indonesian operating. NPL increased to 3.3% (FY2013: 3.2%). Improvement in CIMB Bank Group capitalization - Tier-1: 10.4%, RWCAR: 13.9% (FY13: 9.8%, 13.1%). NIM edged marginally lower to 2.86% (3Q13: 2.87%).	Maintain mild underweight. Asset quality and capitalization is below Malaysia’s industry average. Industry NPL and RWCAR stood at 1.8% and 15.5% respectively as at Sep-14. This is, however, mitigated by CIMB’s strong domestic banking franchise.
MBSB (A2)	Banks/FIs	MY	RAM assigned AA1/Pos to MYR700m Tranche 2 Sukuk under the MYR3bn Structured Covered Sukuk.	Neutral.
Indonesia Banking Sector	Banks/FIs	ID	BI increased its policy rate to 7.75% (+25bps) and lending facility rate to 8% (+50bps).	Positive. The hike in policy and lending facility rates could improve the banking system’s net interest margin to 4.5%-5.0% from 4.2% in Aug-14.