RHB FIC Credit Market Update - 9/4/2015

9 April 2015

Credit Market Update

CDS Tightened; Shinhan, OUE Ltd Priced New USD and SGD; Switch to DBS 2/23

REGIONAL                                                                                      

¨      Shinhan Bank sold USD600m 5y senior at +92.5bps. Asian USD credit protection premium continued to decline with the iTraxx AxJ narrowing 1.25bps to 107bps. Secondary markets traded mixed with interest observed in O&G (i.e. NOBLSP 20, PETMK 45 and RILIN 45) and real estate issuers (GRNLHK 16-17, FRANSH 17-21 and DALWAN 24). Conversely, several Korean single-A issuers like EIBKOR 17-21, KOROIL 17, KOWEPW 17-18 faced selling pressures prior to Bank of Korea’s policy meeting which concluded this morning with the 7-day repo rate staying pat at 1.75%. We expect credits to remain relatively quiet with last night’s 10y UST re-opening and FOMC minutes release being non-event, while tonight’s US initial jobless claims release is expected to be heavily distorted by Easter holiday. Primary markets kicked off 2Q15 with Shinhan Bank (A1/A/A) selling USD600m 5y senior bonds at T+92.5bps (vs. IPT+110bps) and two inaugural issuers, China Communications Construction (A3/NR/A-) and Yuexiu Transport (Baa2/NR/NR), reopening China’s pipeline by embarking on regional roadshows today. Meanwhile, Sunac Holdings (B1/BB-/BB-) seeks to change terms on its 2017 and 2018 callable bonds.

¨      SOR steepened marginally; OUE printed SGD300m at 3.80%. 3y and 5y SOR rose marginally to 1.5775% and 1.895% respectively while credit market reacted to Singtel’s acquisition of Trustwave with some selling on SPSP complex. Focus was on the primary deal from real estate player OUE Ltd, which priced its SGD300m of 3y @3.80%, or 20bps inside the initial guidance. The bond was well-distributed among PB/Retail (50%) FM/Insurance (36%) and Banks/Corporations (14%).

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MALAYSIA

¨      Ringgit bonds ended mixed. Both govvies and corporate market ended in mixed tone yesterday, before the FOMC Minutes released early morning today. On the sovereign space, interests were heavier in the long-end of the curve, particularly in the new 10y-GII 10/25 benchmark with MYR1.3bn reportedly done, gained 0.06sen settling at 3.983%. Meanwhile, credit flows were fairly active with total volume breached MR1bn, spreading across duration and rating. Notably, we saw some banking names crossed – CIMB B3T2 9/23c18 closed 1bps tighter at 4.719% (from previous non-odd lot trade); while a total of MYR90m of RHB T2 4/20c15 and 7/24c19 transacted at 3.984% and 4.88% respectively. Elsewhere, Mudajaya widened 21bps to 4.795% amid negative outlook by RAM.

TRADE IDEA: SGD

Bond(s)	DBSSP B2T2 3.1% 2/23c18 (A+/Aa3/A+)(Price: 101.318, YTC: 2.618%)(Amount O/S: SGD1.0bn)
Comparable(s)	DBSSP B2T2 3.3% 2/22c17 (A+/Aa3/A+)(Price: 101.84, YTC: 2.285%)(Amount O/S: SGD1.0bn)
Relative Value	Within the SGD bank space, we reiterate our call to switch to DBSSP B2T2 2/23c18 from 2/22c17, extending duration by 1 year. The spread for the two bonds has tightened to 33bps currently, from 42bps when we initiated it back in 27-Feb.  We view that the spread between both of the tranches could tighten further given the smaller historical average spread of 20bps over the past 1 year.
Fundamentals	DBS possesses a healthy credit profile supported by: 1)     Diversified banking group with significant exposures in Singapore, China, Hong Kong, South East Asia and South Asia; 2)     Strong domestic presence with estimated loan market shares of 22%; 3)     Healthy asset quality with NPL of 0.9% and LLC of 147%; 4)     Strong capitalization with CET1 and RWCAR of 13.1% and 15.2%. *all data as of FYE14.