RHB FIC Credit Market Weekly - 5/6/15

5 June 2015

Credit Market Weekly

UST Rout Pressures Credit Yields amid New Bond Influx; Rating Challenges for GAR and BERNAS

                                                                       

REGIONAL

¨      UST rout pressures yields in week of profit taking and new supply focus. Credit protection costs, reflected by the iTraxx AxJ IG, rose marginally by 1.7bps to 108bps (+1.3bps). Meanwhile, we saw secondary credit yields pressured by a rout in USTs and market focus on new supply which stripped away some secondary activity amid profit-taking and repositioning. Secondary activity also waned towards the end of the week as investors awaited guidance from US nonfarm payroll data. The UST curve bear steepened 2-13bps across tracking wider core Eurozone yields, contributing to a general widening of 10-12bps in Asian IG credit yields, real estate and O&G yields adding 11.7bps and 12.76bps respectively. Bank bonds were outperformers this week as the sector’s yields added just 4bps. Newly sold bonds were fairly well-bid in their debut trades, including the new Bharti 25s shedding 3bps from its reoffer spread of 210bps and China Three Gorges’ 25 notes narrowing 13.5bps from its reoffer yield of c.3.705%. Regarding credit ratings updates, no new upgrades and downgrades were observed but we did see Golden Agri-Resources’ (GAR, Ba2/NR/NR) outlook being revised to negative due to weakening credit metrics resulting from declining palm oil prices and heavy investment in downstream businesses. Key economic data this week includes that on US labour market conditions, business optimism, retail sales, initial jobless claims, consumer sentiment and inflation. As for China’s lineup, we expect to see data on trade balance, inflation, aggregate financing, retail sales and industrial production.

¨      Bharti Airtel leads this week’s USD4.75bn supply influx. This week’s primary market was busy and offered a bit more variation in issuers. Leading in tap size was Bharti Airtel Limited’s (Baa3/BBB-/BBB-) USD1.0bn 10y notes priced at T+210bps (IPT: T+220bps), oversubscribed 2x and issued at the lowest coupon (4.375%) to date; followed by China National Bluestar Group’s (Baa3/BBB-/BBB-) USD1.0bn tap split equally into USD500m-sized 3y (3.8x oversubscribed) and 5y (2x oversubscribed) bonds priced at T+250bps and T+270bps respectively; Macquarie Bank Ltd’s (A2/A/NR) privately-placed USD750m B3T2 notes priced at T+265bps (IPT: high T+200bps area); China Three Gorges Corp’s (Aa3/A/A+) USD700m 10y notes at T+135bps (IPT: T+165bps), oversubscribed 7.4x; 1) Woori Bank’s debut USD500m B3 AT1s (expected rating: Ba2/BB/NR) priced at 5% from initial guidance within the 5% area and oversubscribed 2x; and Beijing Construction Engineering Group’s (NR) USD500m 3y notes at 3.85% (IPT: 4%), oversubscribed 3x. Also seen was Anhui Transport Holding Group (A3/NR/NR) tapping USD300m in 3y notes at T+195bps (IPT: T+225bps). In the pipeline, Pertamina (Baa3/BB+/BBB-) is planning for a USD Reg S issuance.   

¨      SORs surged on the UST rout, with the 3y and 5y rates rising 13bps and 18bps to 1.77% and 2.24% respectively. This week’s economic lineup was light but fairly upbeat, with May PMI turning out slightly better at 50.2 (prior: 49.4) while the electronics sector index marginally improved to 49.8 (prior: 49.1). Next week’s data lineup is light as well, comprising just COE bids and foreign reserve data. Over in the secondary market, activity was slow and yields added 2.7bps on average. Notably, real estate names were generally better bid over the week, shedding 3bps in yield. Meanwhile, new bond sales were sluggish, with just Keong Hong Holdings (NR), a mixed developer and construction services in Singapore and Maldives, raising SGD50m 3y at 6% (IPT: low 6% area).

MALAYSIA

¨      Ringgit bonds fell 0.01% this week suppressed by govvies; Credit yield moved sideways amid quiet week. MYR Bond Index fell by 0.01% this week as MGS curve bear steepened along with the increase in the global yields. Benchmark MGS increased by 4bps-13bps along the 5y-10y as activity focused in the short end papers amid data heavy week from the global side; while tender for reopening of the 10y MGS also ended on thin demand with BTC of 1.67x, the weakest auction so far this year, averaging at 4.037%. The corporate market was quiet with merely MYR1.8bn exchanged hands throughout the week (vs. average MYR2.7bn/week in May). Credit yields moved sideways amid the selloff in the govvies front. Investors oriented toward mid-to-long duration bonds, skewing towards banking and GRE names such as DanaInfra (MYR270m), Ambank (MYR60m), Alliance Bank (MYR60m) and HSBC (MYR60m). Meanwhile, we saw MYR1.22bn bonds issued this week – Benih Restu (MYR1bn, 10y at 4.62%), IJM (MYR200m, 8y at 4.64%) and Sunway Treasury (MYR20m, 7y at 7.25%) – increased YTD total issuances to MYR28.9bn. In addition, we saw a new MYR5bn senior/sub-debt programme (AA1/AA2) from Krung Thai Bank.

¨      On rating action, RAM downgraded Bernas to A3/negative (from AA3/negative) underpinned by the unexpected deterioration in financial profile arising from the extension of financial support to its parent, Tradewinds (M) Bhd, as well as adverse industry developments.