FW: RHB FIC Credit Market Update - 10/4/14

10 April 2014

Credit Market Update

MYR Market Remains Relatively Active, Yields Tilted Upwards; Dovish FOMC Minutes to Support APAC Sentiment

MALAYSIA

¨      MYR interest on AAA segment; Cagamas heavily traded. MYR market remained relatively active yesterday although we saw a slight decline in volume on a day-on-day basis. Total amount transacted was MYR358m (previous: MYR549m), still higher than last week’s daily average of around MYR200m, reflecting an improved sentiment as both World Banks and IMF released their 2014 GDP target for Malaysia at 4.9% and 5.2%, respectively within BNM (of 4.5%-5.0%) and MoF target (of 5.0%-5.5%) . We saw stronger flows into MGS and MYR so far this week. Yields appear mixed although tilted upwards while the triple-A segment was most active yesterday (65% of volume). Cagamas 5/16 was most traded with yield rising 4bps to 3.66% on the back of MYR60m. Meanwhile, we noted the less liquid Toyota Cap 10/14 was traded yesterday, realigning 26bps lower to 3.43% (since last traded in Jan-13) amid news of potential sukuk debut from another Japanese name, Japan Bank for International Cooperation (JBIC).

¨      Rating actions: HwangDBS Investment Bank upgraded to A1 following Affin’s acquisition; Noble’s sale of agriculture unit deemed credit neutral.  Following Affin’s acquisition of HwangDBS Investment Bank (HwangDBS) which leads to the latter being a strategic entity in Affin’s Banking Group, RAM has upgraded HwangDBS by 1 notch to A1, stable. The merger is due to be completed by 3Q14 with Affin’s assets and liabilities transferred to HwangDBS. Meanwhile, Noble’s proposed partial sale of loss-making agriculture business via a JV with COFCO is expected to relieve some pressure on the group’s leverage levels given heavier debts in the past year, although unlikely to impact its AA2/sta rating in the near term, in accordance with RAM. Noble Group’s agriculture segment registered USD82.8bn operating loss in FY13 (FY12: USD180m profit) primarily due to weak sugar prices and tighter crush margins in Argentina.

REGIONAL

¨      APAC credits broadly unchanged; FOMC minutes dovish-feel placates investors. APAC markets saw little activity as the market awaited the minutes of the Mar 18-19 FOMC meeting. The JACI Composite nudged down by 0.1bp to 257.3, while JACI IG’s were broadly unchanged while the HY dipped by a larger 0.2bps. China saw relatively more activity than other key APAC nations, with the Property and FI driving average yields downwards while HK saw relatively placid trade with investor concentration on industrial papers, with popular day papers including HAIAIR 2/20 (-12bp to 4%), SBSG 12/18 (-5bp to 3.664%) and CHRAIL 2/23 (-3bps to 4.63%). Singapore credit saw both gainers and losers with close to net offsetting effect, with top gains include UOBSP 24c19 (-4bps to 3.827%) and STSP 12/31 (-1.5bps to 4.526%) while losses were led by DBSSP 37c14 (+3.5bps to 5.043%). Over in Indonesia, the negative surprise announcement that Jokowi will have to form a multi-party coalition for the presidential election is expected to curb gains in the market (ever since Jokowi’s presidential nomination was announced). In the US, the UST 10yr nudged upwards by 0.9bps to 2.6917% as investors stayed at the sidelines awaiting the release of the Mar 18-19 FOMC minutes. The minutes suggest that the Fed is more dovish than expected, with market participants now pushing back Fed rate rises to late 2016. This reassured investors of the Fed’s continued dovish direction for now, with the MSCI Asia index ex-Japan rising 0.8% to close at 560.37, a five-month high.

¨      Chalco Hong Kong is issuing a Perp NC3 (NR) at an initial price guidance of 6.5% (T+567bps), with a reset from Year 3 onwards at UST 3y plus initial spread and one-time 500bps step up. Chalco’s Perp is structurally similar to existing Chalum 6.625% Perp NC5, which has a current yield of 6.18%. Over in India, the State Bank of India is issuing a 5y and 10y USD (expected rating: Baa3/BBB-/NR) with an initial price guidance of T+240bps and T+265bps respectively. The most recent Indian government related entity USD issuance, Oil India (Baa2/NR/BBB-), received a good reception and with pricing for 5y and 10y at T+222.5 and T+272.5 respectively, comfortably inside initial price guidance (of T+250bps and T+300bps).

TRADE IDEA

¨      MYR: Reiterate value in ADCB 5/17. Pursuant to our call on 27-Mar, ADCB 5/17 (last traded yield on 18-Mar of 4.26%) remains attractive with a potential 27bps pick-up value to our proprietary AAA curve, placing it at a fair value of 3.99%. Further, it is only 10bps narrower than another Abu Dhabi-based name, NBAD 12/20 (last traded yield on 19-Mar of 4.36%), presenting ADCB 5/17 as an attractive proposition for duration play. Fundamental-wise, ADCB’s MYR3.5bn MTN programme is guaranteed by its parent, Abu Dhabi Commercial Bank PJSC (ADCB). ADCB, the third largest bank in UAE by assets, is majority-owned by the Abu Dhabi government and deemed to be systemically important to the UAE, while rated at A/A+ by S&P and Fitch – 1-2 notch higher than Malaysia’s A3/A-/A-.

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