RHB FIC Credit Market Update - 28/5/15

28 May 2015

Credit Market Update

                                       

New Supply in Focus; Sunac Abandons Kaisa Acquisition; Malakoff Delivers Strong Post-IPO Results; Hold Genting 6/22 MYR  

REGIONAL                                                                                      

¨      Credits generally stable amid busy primary session; Sunac abandons Kaisa acquisition. Credit protection costs rose again, reflected by the iTraxx AxJ IG inching up 0.7bps to 106bps. Credit markets opened on a firm tone with a bull-flattened UST curve (2-9bps) and a decent new supply lineup. China also released stronger industrial profits data, an increase of 2.6% YoY and the first annual rise since Sep 2014. At close, secondary yields were firm, with IG banks trading flat overall while IG real estate narrowed 4-5bps, again outperforming HY counterparts, which saw yields tightening 2-3bps. We noted HY real estate player, Kaisa Group, as the biggest loser yesterday after Sunac China Holdings abandoned its proposed USD1.2bn acquisition of Kaisa, its bonds settling 73bps wider on average. In the O&G space, we saw a further 2-3bps in yield compression in spite of Brent crude prices coming down 2.6% to USD62.06/bbl.

¨      As for yesterday’s primary session, new bond sales included Garuda Indonesia’s (NR/NR/BBB+idn) USD500m 5y sukuk priced at 6.125% (IPT: 6.25%), Guangzhou Communications Investment Group’s (Baa1/NR/A-) USD400m 3y notes at T+205bps (IPT: T+230bps), Fantasia Holdings Group’s (B2/B+/NR) USD200m 3y notes at 11.8% (IPT: 12%), and CIFI Holdings Group (Ba3/BB-/BB-) with USD400m 5NC3 notes at 7.875% (IPT: 8.125%). Today, Global Logistics Properties Ltd (Baa2/NR/BBB+) is expected to sell USD 10y notes at an IPT of T+210bps, while China National Bluestar Group Co. (Baa3/BBB-/BBB-) will be tapping for corp-guaranteed USD 3y and 5y notes at IPTs of T+240bps and T+260bps respectively. Adding to the pipeline, Bank of Communications (A2/A-/A) is eyeing a USD AT1 issuance.

¨      SOR curve flattener; Primary activity by CENSUN, GUOLSP and BTHSP. SOR curve flattened with 3y rising 1.5bps to 1.635% and 5y declining 1bps to 2.043. Secondary markets had better buyers for SWIBSP 16-18, TGRSP Pc20, GUOLSP 16, and CITSP 17; while better sellers were seen for AREIT 17, SPSP 20, CAPLSP 20-25 and SUNSP 18. In the primary market, Century Sunshine Group (CENSUN, NR) priced its SGD75m 3nc2 at 7.2% (1.3x BTC), while GLL IHT (guaranteed by GUOLSP, NR) announced SGD 3.25y IPT 3.65% and Banyan Tree (BTHSP, NR) to sell 5y IPT 5%.  

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MALAYSIA

¨      Toll road bonds tightened; 1MDB does not pose systemic risk (Moody’s); Malakoff registered strong results (Credit Brief). Govvies closed marginally lower as benchmark yields inched 1bps upward on general, with investors preferred to stay sidelines waiting for more guidance from the global front such as US GDP data to be released tomorrow. Meanwhile, Moody’s views that 1MDB does not pose systemic risk to Malaysia’s public finance and economy. In the corporate market, total volumes breached MYR627m with investors remained focused on the mid-to-long duration bonds. Notably, we saw tightening by couple of bps in toll road names such as BFB, Kesas and Kesturi. Elsewhere, Khazanah is looking to issue the first Sukuk Ihsan bond 7y at price guidance of 4.3% (issue amount to be determined) for the funding of Yayasan AMIR’s Trust School Programme.

TRADE IDEA: MYR

Bond(s)	Genting Capital (Genting) 6/22 (AAA) (Last trade: 26-May; Price: 99.95; Yield: 4.428%; 7yMGS+ c.65bps) (Amount o/s: MYR500m)
Comparable(s)	PLUS 1/22 (AAA) (Last trade: 11-May; Price: 100.87; Yield: 4.248%; 7yMGS+ c.47bps) (Amount o/s: MYR700m). MACB 12/22 (AAA) (Last trade: 21-May; Price: 102.11; Yield: 4.349%; 7yMGS+ c.57bps) (Amount o/s: MYR1.5bn).
Relative Value	We reiterate our recommendation for Genting 6/22 which offer a pickup of 8bps-18bps over similarly rated MACB 12/22 and Plus 1/22. The scarcity of supply from gaming sector could entice demand for the paper with potential tightening from current level.
Fundamentals	The debt facility of Genting Capital is unconditionally and irrevocably guaranteed by Genting Bhd. The latter’s credit profile is supported by its strong balance sheet. As at FY14, Genting’s gearing and debt-to-EBITDA is low at 0.24x and 1.9x respectively. In addition, the Group has ample cash balance and financial assets of MYR25bn compared to total debt of MYR12.5bn (i.e. net cash).

CREDIT BRIEF

Company/ Issuer	Sector	Country	Update	RHBFIC View
Malakoff Corporation Bhd (Malakoff) (AA-)	Power	MY	1Q15 NP increased to MYR120m from MYR15m in the previous corresponding quarter, attributable to higher capacity factor registered by Tanjung Bin Power and consolidation of PD Power. Gearing remained stable at 4.4x. Mild decreased in debt-to-EBITDA to 7.2x (FY14: 7.4x).	Neutral. Debt profile remained intact. Proceeds from IPO will be used to redeem the MYR1.8bn junior bond, which in turn save c.MYR113.4m of interest expenses (based on coupon of 6.3%).