RHB FIC Credit Market Update - 24/2/15

24 February 2015

Credit Market Update

Firm Start with Greek Bailout Extension; Value in Symphony 11/18 MYR

REGIONAL

¨      Firm start to the week with Greece bailout package extended. Asian credit markets yesterday ended on a better tone amid slightly improved risk sentiment as the iTraxx AxJ closed 1.3bps tighter to 102.3bps. In the IG USD space, real estate, oil & gas and SOE power names were better bid, with yields ending firmer (1-4bps tighter) for notable issuers SUNHUN, CHIOLI, SINOCE, KOROIL, RILIN, CHGRID and KORELE. On the other hand, China/HK financials saw mixed performance, with ICBC and CCB subdebt widening while their senior bonds fared better. In the HY space, real estate generally saw firmer bidding on names like FTHDGR, YLLGSP and CENCHI, with KAISAG 18-20s being the exception as their yields widened. The UST curve was flatter at the start of the week as yields tightened 1-6bps across on safe haven demand amid Greece’s debt talks; the market looks toward Fed Chair Yellen’s congressional testimony today.

¨      Interest tilted towards property/ REITs. The 3y and 5y mildly widened yesterday by around +3.5-3.75bps, closing at 1.70% and 2.09% respectively, even as similar duration Treasuries tightened by 3-4bps amid US Jan existing home sales dropping MoM by -4.9%. We saw the property/ REIT space trade a couple of bps tighter, with interest on names like CITSP, CENCHI and FCTSP. There was some interest on short-dated EZISP too even as Brent oil prices have dipped slightly to c.USD58/bbl. The SG FY15/16 budget saw a thrust towards expansion of Changi airport and public transport system, increase healthcare coverage and the expiry of REITs stamp duty exemption (elaborated further under ‘Credit Brief’ table below). Meanwhile, SG Jan Core CPI came in lower than consensus at 1.0% (consensus: 1.3%). In the primaries, Perrenial Real Estate Hldg Ltd (NR) is currently meeting investors for a planned SGD issuance.

MALAYSIA

¨      Inactive Ringgit bonds on Monday as markets lack of near term catalysts. Corporate bonds volume fell to a negligible MYR181m, with 38% of the activity led by the single trade on Dana 11/44 of MYR70m, which closed 1bp higher at 5.059%. Noble 10/15 inched 1bp lower to 4.204% on the odd-lot size deal of MYR7m albeit noises over its accounting treatment on investment in Yancoal. On the govvies, focus would be on the new issue of 5.5y GII 8/20 for the final auction of February. Secondary activities on the segment fell to MYR1.062bn (from MYR1.63bn on Wed), in the absence of near term drivers. MGS 10/19 emerges top, fell 1 sen to 99.87, 3.684% on MYR383m volume. As for the rest, GII 7/22 and 3/21 closed at 3.974% and 4.004% respectively, while the benchmark MGS 7/24 ended 2.5bps higher to 3.886% on tiny sum of MYR35m transaction.

TRADE IDEA: MYR

Bond(s)

Symphony 11/18 (AAA(fg)) (last traded on 29-Jan; price: 98.78; yield: 4.55%; 3y-MGS+c.108bps) (Amount o/s: MYR65m)

Comparable(s)

Putrajaya 9/18 (AAA) (last traded on 27-Jan; price: 99.73; yield: 4.08%; 3y-MGS+c.61bps) (Amount o/s: MYR150m) Aquasar 7/17 (AAA) (last traded on 4-Feb; price: 100.24; yield: 4.15%; 3y-MGS+c.68bps) (Amount o/s: MYR100m)

Relative Value

We see value in Symphony 11/18 for a potential pick-up value of c.30bps to our proprietary AAA curve. Issued in Nov-14, the paper was traded at an attractive 108bps spread to MGS (at yield of 4.55%), c.47bps wider to similarly-rated Putrajaya 9/18. We think the Danajamin-wrapped paper is undervalued and has ample room to narrow. Meanwhile, we noted its relatively small issue size of MYR65m, which may limit liquidity.

Fundamentals

We are comfortable with Symphony 11/18 given the unconditional and irrevocable guarantee from Danajamin. On a standalone basis, Symphony Life is a mid-sized developer with properties in Kedah and Klang Valley. Credit profile appears weak given inconsistent project launches which has lowered unbilled sales to MYR175m as at June-14 (June-13: MYR477.7m) while ongoing projects show a gross development value of MYR727.9m. Nevertheless, any rating changes on the paper would be dependent on Danajamin’s credit strength.

CREDIT BRIEF

Company/ Issuer

Sector

Country

Update

RHBFIC View

Stamp Duty

REITs

SG

It was announced in the Budget 2015 that stamp duty remission on the transfer of Singaporean and overseas assets into a REIT will be allowed to expire on 31 Mar 2015.

Mildly negative. This will roughly push up acquisition costs by around 3% and will impact REIT players considering local property acquisition, though we do not expect a large impact. This move was largely expected by market players, with some major players such as City Developments having moved into alternative securitization strategies such as the recent SGD1.5bn Property Participation Securities issued based on the cash flow of its Sentosa properties.