RHB FIC Credit Market Weekly - 24/4/15

24 April 2015

Credit Market Weekly

Credits Ended Flat Amid Focus on Sinopec Bumper Deal and Pelindo; Golden Agri Taps SGD125m; More Subdebt Issuances in MYR   

                                                                       

REGIONAL

¨      Risk appetite held solid for primary deals; PBOC easing sets firm tone ahead of China’s first default incidences for the year. We tracked movements in Asian CDS costs to be marginal on average, with the iTraxx AxJ ending flat at 107bps this week. Credit markets began the week with generally positive news of China’s home prices falling in fewer cities, 49 last month compared to 66 in Feb as transactions increased, as well as the PBOC cutting China’s reserve requirement ratio by 1% down to 18.5% last Sunday. Secondary activity was still subdued as primary deal flow was strong, although yields widened 5bps on average WoW. O&G credits were softer in general despite a 1.36% pickup in Brent crude to USD64.85/bbl amid news of China’s State-backed power equipment manufacturer, Boading Tianwei Group’s, missing interest payments on its CNY1.5bn 5y bonds. Notably, Fitch has stated that it expects defaults by SOEs to be less uncommon but remain sporadic and isolated given its view of China’s prioritization of systemic risk management. Meanwhile, China IG and HY property bonds were generally resilient to Kaisa Group’s defaulting on its USD 2017-18 coupons. The market appears to be treating the default as an isolated incident for now. On rating actions, we noted S&P’s downgrade of Yanzhou Coal Mining to BB from BB+, following Fitch’s move in the prior week, underpinned by deteriorating cash and leverage metrics against a subdued coal price backdrop; YANCOAL complex yield reacted negatively, widening 5-14bps across. Conversely, S&P raised its ratings on Tencent Holdings Ltd to A from A-, following Moody’s upgrade of the tech firm to A2 from A3 in March; TENCNT complex yields were unresponsive to the upgrade as it appeared priced in.

¨      New bond sales remained substantial at USD8.13bn compared to USD9.87bn last week, led by Chinese and Indonesian issuers. The top prints for the week included Sinopec Group Overseas Development (2015) Ltd’s USD2.5bn 5y notes priced at T+125bps (IPT: T+145bps), USD1.5bn 10y at T+145bps (IPT: T+160bps) and USD800m 30y at 4.1% (IPT: T+180bps) guaranteed by China Petrochemical Corp (Aa3/AA-/NR); the notes were oversubscribed 2.8x, 3.2x and 4.1x respectively, funds being the largest participants for the 5-10y while lifers took majority of the 30y notes. Next was Indonesian shipping company, Pelabuhan Indonesia II’s (Baa3/BB+/BBB-), new print of USD1.1bn 10y at 4.275% (IPT: 4.625%) and USD500m 30y at 5.5% (IPT: 5.625%), which were 3.6x and 2x oversubscribed respectively. Meanwhile, smaller prints we saw comprised Sydney Airport Finance Co Pty Ltd (Baa2/NR/NR) with USD500m 10y at T+152bps (IPT: T+165bps); Doosan Heavy Industries sold USD500m 5y notes at T+95bps (IPT: T+115bps); Korea Resources Corp’s (Aa3/A+/NR) USD350m 5y at T+97.5bps (IPT: T+115bps), which drew USD1.7bn in orders despite a brewing political scandal in South Korea; Indonesia developer, Bumi Serpong Damai’s, debut USD225m notes which drew over USD750m orders and priced at 6.75%, inside its initial price target of 7%; and Chinese developer, Jingrui Holdings Ltd (B2/NR/B), with USD150m 3y notes at 13.25% (IPT: 13.5%).

¨      USD Pipeline still looks promising. Following Sinopec’s jumbo sale, we expect state-owned O&G giant CNOOC Ltd (Aa3/AA-/A+) to also deliver a strong USD print as it currently mandates banks for the deal; S&P has affirmed CNOOC’s ratings on continued belief in extremely high likelihood of timely support from the Chinese government. Added to the pipeline this week, the market expects offers from China Construction Bank (A1/A/A) with a new USD T2,  Bharat Petroleum Corp Ltd (Baa3/NR/BBB-); Reliance Communications (Ba3/NR/BB-); Indosat Tbk PT (Ba1/BB+/BBB), to refinance 2010 debt; Suncorp-Metway Ltd (A1/A+/A+); Hongkong Land Holdings Ltd (A3/A/A); Shinsegae Co Ltd (NR), with notes guaranteed by Kookmin Bank (A1/A/A); and Landsea Green Properties Co Ltd (NR).

¨      Pickings in O&G space as oil prices hit 2015 high.  Primaries picked up to SGD450m from last week (SGD275m) as uncertainty diminished post-MAS decision and this was led by issuances from Golden-Agri Resources Ltd (NR) with a SGD125m 3y at 5.5% and United Envirotech Ltd (NR) with a SGD225m 3y at 4.7%, which was 30bps inside initial guidance. This paper has been one of the better bid papers so far this year, with a BTC at around ~8x, and has been largely driven by demand from PBs (~70% of investors). For 1Q2015, issuances were cumulatively at SGD4.9bn, around three-quarters of 1Q2014’s volume, with issuances dominated by Banks/FI and real estate names at around 35% each. Compared to last year, noticeably absent this year are the proliferation of foreign first-time names as well as (unsurprisingly) oil & gas players, and this trend is expected to continue. We observed keen interest in the oil & gas space on names like KRISSP, VALSZP and EZRASP even as Brent oil prices reached 2015 highs of around USD64-65/bbl as Saudi Arabia led air strikes on Yemen.

¨      SORs reverse initial declines post-MAS decisions. We saw the short-to-mid SORs widen by around 7-9.5bps, with the 3y and 5y closing at 1.50% and 1.86% respectively, reflecting related movements in similar duration Treasuries. As expected, the 3y SOR has reversed its decline post-MAS decision last Tuesday, and is expected to continue to rise in tandem with the Fed tightening cycle.

MALAYSIA

¨      Ringgit bond gain 0.15% W-o-W; More issuances from bank. The local bond market gained of 0.15% (up to Thursday) supported by both govvies and corporate space. MGS curve inched 4bps-5bps downward amid the still low inflation of 0.9% yoy in March and neutral BNM stance in the near term. Meanwhile, PDS generally ending on a more biddish tone with investors continue to hunt for mid-to-long term papers for yield pickup. A total of MYR2.4bn transacted during the week, slanting towards banking and power sector aside of the normal quasi-government bonds. Among the top traded bonds were DanaInfra (MYR472m), Malakoff (MYR120m) and 1MDB (MYR100m).

¨      On the primary market, a total of MYR730m issued this week, increased total YTD issuance to MYR18.9bn (c.22% of 2014 total issuance). Among the large issuances were IJM (MYR200m), BIMB (MYR300m) and Putrajaya (MYR200m). Another MYR2bn bonds will be issued early next month - Aman Sukuk priced 3y-15y at 3.9%-4.7% (MYR510m); UOBM B3T2 10nc5 at 4.65% (MYR1bn); while RHB to issue 10nc5 B3T2 (MYR500m).

¨      To recap, we saw mixed news flow in the Malaysia credit space this week. Public Bank started the year positively with net profit +15.3% yoy for its 1Q15 result. On the other side, high provisioning at Thailand and Indonesia unit may drag the CIMB Group’s 1Q15 performance. Meanwhile, MARC put IJM on negative outlook, concerning on the challenging plantation and construction prospect. This is the third construction company under our coverage with negative outlook (the other 2 are Eversendai and Mudajaya).