RHB FIC Credit Market Update - 11/6/15

11 June 2015

Credit Market Update

                                       

Quieter Primaries Amid Rates Uncertainty; Value in Maybank LT2 5/24c19 MYR 

REGIONAL                                                                                      

¨      Quieter USD primaries amid rates uncertainty. Risk aversion marginally improved as the iTraxx AxJ tightened by -0.6bps to 109.5bps, even as investors expect a steepening UST curve and primary liquidity has slowed at this point as there is an uncertain rates trajectory moving forward. In the Asian credit market, banking names (CBAAU, BCHINA, ICICI)  traded a couple of bps wider, while O&G papers like PETMK, CNOOC and SINOPE saw some selling even as Brent oil prices recovered from lows of USD62/bbl earlier this week. In the primaries, Vista Land is planning to sell USD 7y bonds at initial price of 7.75% while China Great Wall Asset Management (A+) is printing a USD 3y at initial guidance of T+180bps. Soechi (B1/-/B+) is currently in investor meetings for a planned USD issuance.

¨      Investors may reassess positions after oil prices rebound. The 3y and 5y SORs marginally widened by +2.2bps and +3.6bps to close at 1.81% and 2.28% respectively.  We saw some buying into IG names like SIASP and NOLSP while investors may reassess their oil & gas positions after Brent oil prices rebounded this week to around USD65/bbl. The primaries market continued to stay quiet as investors stay on the sideline due to interest rates volatility.

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MALAYSIA

¨      PDS tracked govvies yields increase. Credit market ended in negative tone as yields closed higher yesterday, along with the softer govvies front. Corporate flows concentrated in mid-to-long duration bonds with total volumes breaching MYR1.2bn throughout the day.  Toll road and quasi-government yields were seen to generally widen in the secondary market. Among the top losers were GovCo 21 (+7bps to 4.178%), Anih 25 (3bps to 4.746%) and DanaInfra 39 (+7bps to 4.851%).

TRADE IDEA: MYR

Bond(s)	Maybank LT2 4.25% 5/24c19 (Trade date: 8-May; Price: 98.9; Yield: 4.554%; 5yMGS+c.88bps) (RAM: AA1) (Amt O/S: MYR2.1bn)
Comparable(s)	CIMB B3T2 4.8% 9/23c18 (Trade date: 20-May; Price: 100.98 ; Yield: 4.476%; 5yMGS+c.80bps) (RAM: AA1) (Amt O/S: MYR750m) RHB B3T2 4.99% 7/24c19 (Trade date: 4-Jun; Price: 101.85; Yield: 4.488%; 5yMGS+c.81bps) (RAM: AA3) (Amt O/S: MYR1.0bn)
Relative Value	We see value in Maybank LT2 5/24c19 which were trading 7bps-8bps cheaper than similarly rated CIMB B3T2 9/23c18 and 2-notch lower rated RHB B3T2 7/24c19. We maintain our preference for the old-style paper given its lack of PONV writedown features and greater scarcity value.
Fundamentals	We are comfortable with Maybank’s credit profile, supported by following key credit drivers: 1)     Largest banking group in Malaysia, with c.16% estimated market shares in both system loans and deposits; 2)     Healthy asset quality, reflected by its gross impaired loans ratio of 1.50% (industry: 1.63%) and adequate loan losses coverage of 93%; 3)     Adequately capitalized, based on CET1, T1 and total capital ratios of 11.5%, 13.2% and 15.7% respectively. 4)     Loan-to-Deposit were moderate at 92%. *All financial data as of Mar-15