RHB FIC Credit Market Weekly - 15/5/15

15 May 2015

Credit Market Weekly

Resilient Credits Albeit Selling in DM; Rate Cuts Spur China USD Offers; Malaysia’s Economy Grew 5.6% in 1Q15  

                                                                       

REGIONAL

¨      Asian credits resilient amid selling in DM; attention on Chinese bonds. Asian credit protection costs ended lower compared the prior week as the iTraxx AxJ IG declined 0.78bps WoW to 108bps as risk appetite shifted to Asia from the West, which experienced selling pressures in the latter part of the week. Credit yields had a good run this week, declining 3-4bps in general, starting off the week on a positive tone following China’s rate cuts. In the IG space, Chinese bonds were well bid, with real estate yields seeing the most movement, shedding 6.7bps on average, followed by bank yields which declined 3.7bps, and O&G yields tightening 1.5bps as Brent crude prices crept up 1.6% this week. Indian banks were particularly popular this week, IG yields narrowing 4bps, against Moody’s positive expectations regarding India’s sovereign and bank credit profiles. New Chinese prints also drew firm interest, including Huawei’s 10y USD1.0bn papers, CCB’s new 25c20 B3T2s, and China General Nuclear Power Corp’s 10y notes. On the HY front, yields were resilient despite China-based coal importer Winsway Enterprises Holdings defaulting on its 8.5% 2016 notes, failing to meet USD13.15m in coupons. Meanwhile, economic data was mixed this week. From the US, there was a better NFP print of 213K (prior: 129K), positive US initial jobless claims data as the print declined to 264K (consensus: 273K; prior: 265K) as well as slightly better NFIB small business optimism of 96.9 (prior: 95.2); however, US retail sales prints were disappointingly flat for April.  In China, retail sales and industrial production prints of 10% (consensus: 10.4%; prior: 10.2%) and 6.2% (consensus: 6.3%; prior: 6.4%) respectively were unimproved but close to their market estimates, while new loan and aggregate financing data were 40% and 11% down respectively. There was also a significant jump in foreign direct investment of 10.5% YoY versus market estimates of 2% and a prior figure of 2.2%. Outstanding data for the week includes US industrial production, consumer sentiment and inflation prints expected later today.

¨      New deals at USD4.45bn; Huawei unveiled USD1.0bn 10y notes for tech space. Leading the primary tap was the banking space with Agricultural Bank of China’s (New York) (ultimate parent rating: A1/A/A) senior notes, including USD500m 3y priced at T+115bps, USD250m 3y FRNs at 3mLIBOR+91bps and USD500m 5y at T+130bps; and China Minsheng Bank’s (NR/BBB/BB+) inaugural USD600m 3y notes priced at T+145bps (IPT: T+165bps). Furthermore, Korea Development Bank (Aa3/A+/AA-) sold USD500m 5y notes at T+72.5bps (IPT: T+80bps), its first USD tap since last September and oversubscribed 2.6x. As for this week’s highlight, tech giant Huawei (NR) delivered its first USD1.0bn 10y tap at T+195bps (IPT: T+220bps) on USD8.5bn orders (8.5x oversubscribed); the subscription base comprised 77% Asian investors and 58% fund managers. Other deals seen from Chinese issuers were China General Nuclear Power Corp (A3/A-/A+) with USD600m 10y notes priced at T+177.5bps (IPT: T+200bps), 6.3x oversubscribed, and Agile Property Holdings Ltd (Ba3/BB-/NR) supplying USD500m 5NC3 papers at T+9.125% (IPT: 9.375%), 3x oversubscribed. Updates to the pipeline are Industrial & Commercial Bank of China Ltd’s (A1/A/A) proposed USD B3T2 sale targeted in June, which is to follow its AT1 offering in December and China Construction Bank’s T2 tap on 6-May. Also, Shanghai Electric Group Co Ltd (A2/A/A) and Beijing State-Owned Assets Management (Hong Kong) Co. (A3/A-/A) may raise their own set of USD Reg S bonds.

¨      Robust primary issuances as SORs tighten considerably. This week saw strong SGD issuances of around SGD2.6bn, a keen pick-up from the previous week as the short-to-mid SOR bull steepened by c.13-16bps. We saw both new and repeat issuers, with familiar names such as Sembcorp Industries (NR) with a SGD Pnc5 at 4.75%, Frasers Centrepoint Ltd (Baa1/BBB+/-) with a 7y at 3.65% and Hotel Properties (NR) with a SGD65m 6y at 3.85% while new issuances were seen from China Metallurgial Group Corp (Baa3/BBB-/-) with a SGD300m 2y at 3% and Soilbuild Business REIT (BBB-) with a SGD100m 3y at 3.45%. We saw renewed interest in IG names (SPSP, PSASP) as SORs tightened, as well as HPLSP and perpetuals (FCLSP, CHEUNG) ahead of primaries by Hotel Properties and Sembcorp Industries with a SCISP Pnc5. We also observed demand into China names like CENCHI after PBoC’s rate cut during the weekend.

¨      SORs stabilizes as Treasuries recouped some of earlier losses. The SOR has been volatile this month, with the short-to-mid SORs widening by around 23-27bps in the first week while this week saw the opposite, with the 3y and 5y tightening by -16bps (to 1.63%) and 13bps (to 2.08%) respectively. Similar duration Treasuries also bull steepened by between 6-9bps. SG Mar Retail Sales printed lower this afternoon (actual: 2.1%; consensus: 3.3%) while upcoming key data release next week would be April NODX on 18-Apr (consensus: -5%; previous 18.5%).

MALAYSIA

¨      Economy grew by 5.6% in 1Q15; Moody’s uncertain on Malaysia credit outlook. Ringgit bond recouped 0.05% w-o-w after a loss of 0.06% in the previous week. Activities were thinner at MYR10.9bn on the govvies side, as investors were focusing on the new issuance of MYR4bn 3y-GII and staying sidelines before the GDP data which was released on Friday noon. Malaysia GDP grew by 5.6% y-o-y in 1Q15 (slightly slower than 5.7% registered in 4Q14) while we also saw better balance of payment surplus of MYR10bn in the same period (close to double from MYR5.7bn in 4Q14). MGS ended mixed with market players were more active in MGS 7/16 and MGS 10/20, which saw the yields tightened by 3-5bps wow at 3.125% and 3.566%. Looking ahead next week, trading sentiment could be affected by the Moody’s rating outlook uncertainty on Malaysia, concerning on the government support to the financially distress 1MDB. Currently, Moody’s rates Malaysia at A3/Positive.

¨      Meanwhile, corporate flows were moderate at daily average of MYR502m. We note marginal gain in the banking and quasi-government sector, while also saw tightening in the highway bonds such as PLUS, Anih and Kesturi. Primary market were quiet this week with total supply of MYR560m, mainly from Turkish banks - TF Varlik (MYR210) and KT Kira (MYR200m); as well as other small prints -  Sunway (MYR100m) and DRB Hicom perps (MYR50m). To date, we saw approximately MYR22bn of MYR bonds issued this year, c.35% lower than MYR34bn in May last year.