RHB FIC Credit Market Update - 28/4/15

28 April 2015

Credit Market Update

Quiet Market Before FOMC; Otto Marine Cleared Legal Issues; Tenaga Credit to Stay Robust Amid Strong Results

                                                                                               

REGIONAL                                                                                      

¨      Quieter flows expected ahead of FOMC statement; Selling in China O&G names ahead of CNOOC issuance. The iTraxx AxJ premiums marginally rose by +0.3bps to 106bps on Monday while the 2y and 10y USTs saw concurrent movements of around +1.2bps. We saw the yields of the behemoth O&G names trade a couple of bps tighter (TOPTB, PETMK, IOCLIN), though more selling was seen in CNOOC and SINOPE papers, probably in lieu of the expected tri-tranche issuance from CNOOC.  We opine that corporate flows will stay mostly at the sidelines today and tomorrow ahead of the release of the FOMC statement on Thursday. In the primaries, Reliance Communications Ltd (Ba3/NR/BB-) printed a USD300m 5.5y at 6.5%, with BTC at close to 2.0x, while CLP Power Hk Ltd (A1/A/NR) printed a USD300m 10y at final price of T+125bps, 20bps inside initial guidance, and receiving an overwhelming response for 2015’s first utility issuance with a BTC of over 9x.  CNOOC (Aa3/AA-/A+) is printing a USD 5y, 10y and 30y bonds at initial guidance of T+150bps, T+180bps and T+170bps. Shinsegae, guaranteed by Kookmin Bank (A1/A/A), is currently in meetings with investors for a planned USD issuance.

¨      Focus on new issues; Otto Marine legal issues cleared. We observed flattening in the short-to-mid SORs, with the 3y and 5y marginally tightening by -0.95bps (to 1.50%) and -1.5bps (to 1.86%) respectively. In the secondary space, we continued to see interest flowing into recent prints such as UENVSP and GGRSP. Otto Marine Ltd (NR), which received a winding up application a few days ago from a creditor for sums of USD200m and EUR0.9m, has fully repaid the amounts owing yesterday. Correspondingly, OTMLSP 8/16 has fallen to 90.3 (from around 93.5) over this past week.

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MALAYSIA

¨      Strong result for TNB in 2Q15, flat topline for Maxis-BGSM (refer Credit Brief). TNB kick-off the 2Q15 reporting season with strong net profit growth of 24% y-o-y, while Maxis posted an almost flattish topline for 1Q15. Meanwhile, IJM to joint venture with Singapore-based Perennial Real Estate Holdings Ltd to develop integrated waterfront in Gelugor, Penang with Gross Development Value of MYR3bn. On the secondary market, MGS benchmarks continue the positive momentum, ending 1bps-2bps lower, as Ringgit appreciated to 3.5675/USD yesterday on follow-up buying from oil price consolidation. Similarly, credit market closed higher amid active flows of MYR651m. We note tightening by couple of bps in highly traded AAA bonds such as Danga, Cagamas, Aquasar and HMBS.

TRADE IDEA: MYR

Bond(s)	JEV 5/19 (RAM: AA3)(Last trade: 10-Apr; Price: 116, YTM: 4.679%; MGS5y+110bps)(Amount O/S: MYR90m)
Comparable(s)	TBEI 3/19 (RAM: AA3)(Last trade: 17-Apr; Price: 101.2, YTM: 4.541%; MGS5y+96bps)(Amount O/S: MYR30m)
Relative Value	We see value in Jimah 5/19 which was trading 14bps higher than similarly rated TBEI 3/19, which is still under construction.
Fundamentals	JEV’s credit profile is supported by the stable and recurring cash flows from its favorable PPA terms. Jimah is expected to achieve minimum FSCR of 1.5x throughout the tenure of its programme. We view that the operational hiccups in the last 2 years has minimal impact to its debt service capability.