RHB FIC Credit Market Update - 9/6/15

9 June 2015

Credit Market Update

                                       

APAC USD Markets Quiet amid Mixed Economic Signals; Busier Session for MYR Bonds; Value in BFB 1/22 MYR 

REGIONAL                                                                                      

¨      Subdued credit activity; China shadow banker taps USD225m. Credit protection costs reduced 0.5bps to 110bps amid subdued trading and mixed economic data including a stronger-than-expected US NFP of 280k and a significant decline in China imports of 17.6% YoY. Credit yields added 1-2bps in general, with the exception of IG real estate yields which shed 1.1bps. O&G bonds underperformed as a whole, widening 3.7bps in yield against a slight decline of 1% in Brent crude prices to USD62.69/bbl. Chinese O&G names fared better, including CNOOC, SINOPEC and NEXEN bonds which closed 0.5-1bp tighter. On the HY front, Agile 17 notes widened 2bps as the developer seeks to amend the terms of the notes. Elsewhere, Berau Coal’s 15 notes gained on news of Widjaja’s Asia Coal Energy Ventures (ACE) raised bid being accepted by Rothschild. Meanwhile, recent issues Bharti 25 and Woori Bank’s new AT1 ended the day softer, adding 0.4bps and 9bps to yields respectively. Turning to the primaries, Zhongrong International Trust Co Ltd (NR) sold USD225m 3y notes at 6% (IPT: 6.25%), oversubscribed 2.55x, while Korea Hydro & Nuclear Power Co (Aa3/A+/AA-) priced a USD300m 10y bond at T+95bps (IPT: T+110bps), the first Korean power co. to issue a USD bond this year. In the pipeline, China Great Wall Asset Management (A1/A-/A-) is has mandated banks for a USD Reg issuance.

¨      SORs widen in tandem with USTs post-NFP. The short-to-mid swap curves widened in tandem with Treasuries post-sanguine US NFP numbers, with the 3y and 5y closing at 1.81% (+5.75bps) and 2.29% (+7bps) respectively. Trading was quieter on Monday, though we saw continued pickings into higher quality names like the SG banks, SIASP and SCISP as well as GGRSP and OLAMSP.

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MALAYSIA

¨      Govvies steepened further amid weak Ringgit; GREs fueled corporate flows. The govvies market closed lower, responding to the higher UST yields amid weakening of USDMYR to 3.772, the weakest level since de-pegged in 2005. The 10y MGS topped volumes with MYR647m transacted and yields closing 13bps wider at 4.16%, expanding the 10y/3y spread to 87bps. Meanwhile, corporate market moved sideways amid strong flows of MYR1.39bn, led by GRE bonds - Prasarana (MYR314m) and DanaInfra (MYR148m). Elsewhere we note tightening in some power bonds – YTLPI 3/23 narrowed 2bps to 4.629%; while TBEI 3/27 fell 7bps to settle at 5.162%.

TRADE IDEA: MYR

Bond(s)	Bright Focus Bhd (“BFB”) BFB 1/22 (RAM: AA2) (Last trade: 27-May; Price: 100.5; Yield: 4.711%; 7y-MGS+ c.62bps) (Amount O/S: MYR70m)
Comparable(s)	ANIH 11/21 (MARC: AA) (Last trade: 11-May; Price: 103.61; Yield: 4.458%; 7y-MGS+ c.37bps) (Amount O/S: MYR160m) KESAS 10/22 (RAM: AA2) (Last trade: 5-Jun; Price: 101.815; Yield: 4.456%; 7y-MGS+ c.37bps) (Amount O/S: MYR90m) KESTURI 12/21 (MARC: AA-) (Last trade: 5-Jun; Price: 98.34; Yield: 4.549%; 7y-MGS+ c.46bps) (Amount O/S: MYR80m)
Relative Value	In toll road sector, we see value in BFB 1/22 which offer 25bps pick up over similarly rated ANIH 11/21 and Kesas 10/22, while is also trading 16bps cheaper than 1-notch lower rated Kesturi 12/21.  Nevertheless, we note that the smaller BFB 1/22 tranche could constrain its liquidity.
Fundamentals	BFB’s credit profile is supported by the following: 1)     Strategically aligned expressway. The toll road is the fastest route that connects KL city center to Putrajaya/Cyberjaya and KLIA. As at 9M14, BFB has solid traffic base with average daily traffic (ADT) of 109k, although c. 5% below the base case projected traffic of 115k for 2014. 2)     Strong debt service capability. Based on our estimation, BFB needs c. 116k ADT in between 2015-2033, in order to service the debt obligations (compared to base case projection of average 214k). At flat ADT of 116k, we estimate the FSCR to average at 3.1x. Hence, we view that BFB able to absorb significant traffic shock from the initial projection. 3)     Construction risk. The construction of Sri Kembangan Link (SK Link) is ahead of schedule (progress as at Jun-14 at 66% vs scheduled timeline of 42%).  Expected to be completed in Jul-16, SK Link is estimated to contribute about 9% to total revenue (based on the initial year ADT forecasted by traffic consultant). 4)     Regulatory risk.  Although MEX is subject to non-toll rates revision risk, we view that the Government will pay compensation, as shown in the past.