Monday, May 25, 2015

RHB FIC Credit Market Update - 25/5/15




25 May 2015


Credit Market Update
                                       
Rallying Subsides Ahead of Yellen’s Speech; SBREIT Priced at 3.45%;
Value in YTLPI 10/24 MYR  

REGIONAL                                                                                      
¨      Risk sentiment remains benign; rallies subsided ahead of Yellen’s speech. Credit risk sentiment was relatively stable last week, with the iTraxx AxJ IG ending flat at 105bps on Friday; notably, Malaysia’s 5y CDS has tightened 3.2bps over the week, extending gains c.9bps of over the past month. Secondary trading decelerated ahead of Yellen’s speech, which clarified that the Fed remains committed to raising rates this year, leaving treasury rates without any upside catalysts. Credit market activity was nonetheless generally benign, where we noted yields tightening 1.8bps in the banking sphere and stability in O&G markets against a slight decrease of 1.76% in Brent crude price to USD65.37/bbl. However, Chinese real estate yields were 2bps wider on average amid a lack of upside triggers. Meanwhile, as primary activity took a break, pipeline updates observed included China National Bluestar (Baa3/BBB-/BBB-) and China Three Gorges Corp (Aa3/A/A+) planning USD bonds, with the latter’s meetings commencing 27-May onwards. This week’s US economic data lineup is heavy and includes durable goods orders, PMI, new home sales, consumer confidence, jobless claims prints, GDP and inflation. In China, we expect to see industrial profits as well as manufacturing and non-manufacturing PMI prints.
¨      SOR tightened on weaker US data; SBREIT priced at 3.45%.  The 3y and 5y SOR curves both tightened 3bps to 1.59% and 2.03% respectively due to weaker jobless claims and PMI data in the US. Secondary market yields ended generally flat, with interest seen in EZRASP Pc15 and YLLGSP 17, while SWIBSP 15-18 yields widened. Soilbuild Business Space REIT (SBREIT, NR/BBB-/NR) priced its 3Y SGD100m at 3.45% (IPT+3.5%) and received a BTC of 2.5x from 21 accounts comprising of asset managers/insurance (84%) and banks/corporates (16%) within Singapore.  
¨                   
MALAYSIA
¨      Strong corporate flows led by GREs; MBSB to issue MYR900m Covered Sukuk; YTLPI’s financial profile stayed intact (credit brief). Corporate activity breached MYR1.2bn last Friday led by quasi-government bonds – Rantau 9/15 fell 4bps to 3.485% on MYR190m trades; while PTPTN 8/26 tightened marginally to 4.446% with MYR100m reportedly done. Elsewhere, Malakoff complex moved sideways on combined MYR95m transacted. Meanwhile, activity were quiet at MYR1.7bn in the govvies space as investors’ attention were shifted to the 11MP and inflation data. Focused were on short tenure papers as MGS 7/16, MGS 9/16 and GII 2/16 accumulated RM794 M done in the market. On the primary space, MBSB is targeting to issue MYR900m Covered Sukuk on 29-May, ranging 1y-10y at coupon of 4.30%-5.20%.

TRADE IDEA: MYR
Bond(s)
YTL Power International Bhd (“YTLPI”)
YTLPI 10/24 (RAM: AA1) (Last trade: 15-May; Price: 101.06; Yield: 4.808%; 10y-MGS+ c.94bps) (Amt O/S: MYR700m)
Comparable(s)
Sarawak Energy Bhd (“SEB”)
SEB 7/24 (RAM: AA1) (Last trade: 27-Apr; Price: 102.45; Yield: 4.668%; 10y-MGS+ c.80bps) (Amt O/S: MYR600m)
Relative Value
We recommend to hold on YTLPI 10/24 which continue offers pick-up of 14bps over SEB 7/24, although the former subject to holding company risk. YTLPI continues to demonstrate solid financial position based on its recent 3Q15 result, mitigates the structural subordination of YTLPI debts.
Fundamentals
YTLPI’s credit profile is supported by the following:
1)     Stable business profile. YTLPI’s key profit generators are from its utilities assets in Singapore (Power Seraya) and UK (Wessex Water). Each of the assets has been contributing MYR500-800m to the Group’s PBT for the last 3 years.
2)     Strong balance sheet. Supported by huge cash and deposit balances of MYR9.7bn, YTLPI net debt stood at MYR15bn (gearing: 2.4x, net gearing: 1.4x) and net debt-to-EBITDA of 4.5x.

*All financial figures as at Mar-15.

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