RHB FIC Credit Market Update - 10/4/15

10 April 2015

Credit Market Update

Stable Market Tone in APAC; New Shinhan Bank 5y Senior Drew USD4.0bn Interest; Surge in MYR Credit Flows

REGIONAL                                                                                      

¨      Relatively stable market tone; Shinhan Bank’s 5y senior drew USD4.0bn orders. Asian USD credit protection costs relatively stable as the iTraxx AxJ marginally tightened 0.8bps to 106bps. Risk sentiment found support from Greece’s EUR450m payment to the IMF. Meanwhile, secondary markets opened up to a 1-6bps steeper UST curve ahead of the expected USD13bn 30y auction. We noted generally wider yields across, particularly for commodity and O&G names including NOBLSP 15-20s which jumped 67-113bps after US-based Muddy Waters publicly stated it was shorting the company’s bonds, while SINOPEC 10-30y and CNOOC 30y papers were 5-7bps higher. In the banking space, we noted Indian credits were relatively stable amid Moody’s cutting of deposit ratings on ICICI, HDFC and Axis by one notch in line with India’s sovereign rating of Baa3; the rating agency’s rationale is to limit the capacity for government support to a government’s bond rating. In the Korean space, Shinhan Bank’s new USD600m 5y senior notes drew USD4.0bn in orders mostly from fund managers (44%) within Asia (58%). No new bond sales were observed yesterday. Elsewhere, Golden Agri-Resources Ltd (Ba2/NR/NR) is to begin investor meetings in Singapore on 14-Apr.

¨      SOR steepened; Interest seen in quality names. We observed a steepening of the short-to-mid SOR curve, with the 3y tightening by a larger -3.45bps (to 1.54%) if compared to the 5y at -1.9bps (to 1.86%). We saw interest slanted towards quality names such as STSP, SPOST and MRTSP and two way flows in FCLSP. Looking ahead, investors keenly await the outcome of the MAS meeting on 14-Apr. Against a backdrop of lower inflation and slowing growth, we expect MAS to widen the currency bands to allow the SGD some downside, especially against a stronger USD.

¨       

MALAYSIA

¨      Credit yields tightened amid strong flows. Credit market ended a couple of bps tighter yesterday amid strong activity of MYR1.2bn, skewing toward long duration bonds. Aside of the usual government guaranteed bonds, we saw yields narrowed by 4bps-16bps in power-related names such as SEB 1/27, YTLC 4/23 and Tanjung Bin 8/20-8/24. Investors continue to trade heavily in the GG space which collected more than 40% of trading volume – on typical names such as DanaInfra and Prasarana. Meanwhile, govvies moved sideways as market is awaiting for the new issue of 5.5y MGS 10/20, expected to be announced today. Overall, investors were active in both the credit and sovereign space on total trades of MYR1.2bn and MYR5.6bn respectively.

TRADE IDEA: USD

Bond(s)	Australia & New Zealand Banking Group Ltd (ANZ) 4.5% 3/24 B3T2 (A3/BBB+/A+) (Price: 104.88; Yield: 3.85%; Z+191bps) (O/S Amt: USD800m)
Comparable(s)	ANZ 3.45% 8/22c17 B2 LT2 (A2/A-/A+) (Price: 103.07; YTC/YTM: 2.08%/3.53%; Z+118bps) (O/S Amt: USD750m) Oversea-Chinese Banking Corporation Ltd (OCBCSP) 4.25% 6/24 B3T2 (A2/BBB+/A+) (Price: 105.24; Yield: 3.58%; Z+162bps) (O/S Amnt: USD1.0bn)
Relative Value	We maintain a preference for ANZ 4.5% 3/24 B3T2, initially recommended on 5-Dec 14, given continued attractiveness in the Australia-Singapore subdebt space. Against its closest comparable, OCBCSP 4.25% 6/24, ANZ 3/24 trades at least 15bps wider in yield after adjusting for Moody’s 1-notch lower rating (10bps/notch) and a 3-month tenure reduction. Furthermore, its PONV premium over ANZ 3.45% 8/22c17 B2 LT2 remains substantial at 142bps and 38ps in terms of yield and Z-spread, respectively, after accounting for the 7-year tenure difference (5bps/year). Supply risk in Australia-Singapore USD T2s appears muted at this point with recent T2s being tapped in AUD (e.g., WSTP 4.5% 27c22) and CNH (e.g., WSTP 4.85% 25c20, CBAAU 5.15% 25c20).
Fundamentals	We continue to view ANZ’s credit profile as strong after considering its: 1)     Position as Australia’s third-largest commercial bank by system loans and deposits, with shares of 19% and 21% in system loans and deposits respectively; 2)     Healthy profitability. FY14 net interest margin of 2.20% (industry: 2.04%) and ROA of 0.99% (industry: 0.9%) 3)     High asset quality, reflected by its gross impaired loan ratio of 0.51% (industry: 0.58%); and 4)     Sound capitalization. As of 30-Sep 14, ANZ’s Tier 1 capital ratio stood at 10.7% (industry: 10.8%). Moderating factors to ANZ’s credit profile is its higher reliance on wholesale funding relative to APAC peers. As of 30-Sep 14, ANZ’s loan/deposit ratio stood at 106.1% (industry: 113.4%). *all financial data as of 30-Sep 14