RHB FIC Credit Market Update - 3/6/15

3 June 2015

Credit Market Update

                                       

Profit Taking Ahead of Heavier Supply; 10y Benih Restu Priced at 4.62%; Value in BLand 12/17 MYR 

REGIONAL                                                                                      

¨      Continued profit taking ahead of expected supply; risk sentiment remains stable. Credit risk aversion via the iTraxx AxJ IG abated 0.9bps to 107bps. Credit markets opened to 3-6bps higher UST rates, where investors continued their profit-taking activity, mainly in the IG credit space, and repositioning ahead of new supply. In the IG space, bank yields added 2.5bps, real estate added 4.7bps and O&G credits widened 6.3bps (source: Bloomberg). On the flipside, HY real estate yields narrowed 6.5bps led by AGILE 17s and 20s, the new CIFIHG 20 and FTHDGR 18. Meanwhile, in the O&G sector, SINOPE complex yields rose 4.5bps on average amid Brent crude price improving 0.9% to USD65.49/bbl, with the 10y papers adding 8bps reportedly in preparation for China Three Gorges’ new issuance (source: Reuters). On today’s primary front, we expect to see new sales from: 1) Woori Bank, pricing Korea’s first USD B3 AT1, with tenure set at 30NC5 (expected rating: Ba2/BB/NR) and initial target price in the 5% area.; 2) Bharti Airtel Limited (Baa3/BBB-/BBB-) pricing USD 10y notes at a T+220bps IPT, the proceeds to be channeled to capex; 3) China Three Gorges Corp (Aa3/A/A+) tapping for USD 10y notes at a T+165bps IPT; and 4) Beijing Construction Engineering Group (NR) selling 3y notes at 4% IPT. In the pipeline, Pertamina (Baa3/BB+/BBB-) is planning for a USD Reg S issuance, request for proposals delivered. On economic data, HSBC China composite and services PMI prints for May were mixed but satisfactory at 51.2 (prior: 51.3) and 53.5 (prior: 52.9) respectively. In the US, April factory orders slumped to -0.4% (consensus: -0.1%; prior: 2.1%). Elsewhere, the Reserve Bank of India cut the repurchase and reverse repo rates by 25bps each to 7.25% and 6.25% respectively, while the Reserve Bank of Australia held the cash rate target at 2%.

¨      SORs widen in line with USTs; mixed trading session. SORs rose 3-7bps yesterday, matching overnight UST moves, ending with the 3y, 5y and 10y rates at 1.67%, 2.08% and 2.62% respectively. In the secondary market, yields were generally wider by 1-2bps with buying interest seen in SPSP 15s and 20s, SIASP 15s and 24s as well as LMRTSP 15. We also noted sharp yield increases (7-13bps) in short-dated real estate papers YLLGSP 17, CENCHI 17 and CMASP 17. Meanwhile, Singapore’s May PMI turned out slightly better at 50.2 (prior: 49.4) while the electronics sector index marginally improved to 49.8 (prior: 49.1).  

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MALAYSIA

¨      Power names led corporate flows; Benih Restu priced 10y at 4.62%. The govvies ended on downward bias with thin activity on the benchmarks as investors were seen trimming positions and refused to place huge bets ahead of much-focused US ADP employment (Wednesday) and non-farm payroll data (Friday) in anticipation that the US economy begins to regain traction. Similarly, trading activity remained lackluster in the corporate front with MYR236m exchanged hands. Power bonds led the chart– YTLPI 8/18 saw MYR30m crossed at 4.251%; while Malakoff Power tightened 3bps to 4.601%. On the primary side, Benih Restu (SPV for Genting Plantation) to issue MYR1bn 10y at 4.62% (AA2).

TRADE IDEA: MYR

Bond(s)	Berjaya Land (BLand) 12/17 (AAA-FG) (Last trade: 1-Jun; Price: 100.55; Yield: 4.517%; 3y-MGS+120bps) (Amount O/S: MYR200m)
Comparable(s)	Putrajaya 10/17 (AAA) (Last trade: 22-May-15; Price: 100.38; Yield: 3.928%; 3y-MGS+62bps) (Amount O/S: MYR200m) Quill Retail Mall, QRMSB 3/17 (AAA-FG) (Last trade: 14-May-15; Price: 100; Yield: 4.148%; 3y-MGS+84bps) (Amount O/S: MYR15m) Berjaya Land (BLand) 12/19 (AAA-BG) (Last trade: 20-Apr; Price: 101.45; Yield: 4.5%; 5y-MGS+86bps) (Amount O/S: MYR75m)
Relative Value	We remain overweight on BLand 12/17, which has tightened marginally (-8bps from 4.60%) since our initiation in our Credit Market Update dated 10-Feb. At 4.517%, it remains attractive with a potential pick up value of c.37bps-59bps over similarly-rated Putrajaya 10/17 and QRMSB 3/17. Compared to BLand 12/19 (BG), BLand 12/17 was trading 2bps higher despite 2 years shorter maturity. Hance, we see room for further narrowing given its strong fundamentals with Danajamin’s guarantee.
Fundamentals	BLand 12/17 is supported by an unconditional and irrevocable guarantee from Danajamin. Jointly owned by MOF and Credit Guarantee Corporation Malaysia Bhd (majority-owned by BNM), Danajamin possesses the mandate to provide financial guarantees to Malaysian corporates to facilitate their access to the PDS market.