FW: RHB FIC Credit Market Update - 15/4/14

Credit Market Update

Interest on Shorter MYR Papers; APAC Credits Widened Marginally

MALAYSIA

¨      Yield movements suggest lack of direction; Cagamas and Putrajaya traded. MYR papers short- to mid-duration papers dominated yesterday’s session with focus skewed towards the GG and AAA space. Yield movements moved broadly sideways as investors may have placed focus on MYR1.5bn GII 12/28 reopening yesterday (bid-to-cover ratio: 2.77x, ave: 4.547%) and US retail sales which outperformed consensus. Meanwhile, trade volume declined in both the MGS and corporate bond market with MYR397m (previous: MYR751m) and MYR215m (previous: MYR272m) traded respectively. We opine that investors may remain cautious this week, possibly eyeing CPI data release next Monday (expected: 3.5%; prior: 3.5%). In the active AAA space, Cagamas 10/14 traded at 3.37% flat (MYR40m) while Putrajaya 7/14 traded 1bp wider at 3.42%.

REGIONAL

¨      APAC spread marginally widened; US retail sales no. beat expectations. APAC credits widened as the JACI Composite rose marginally by 0.9bps to 262.5, as selling activity dominated the JACI HY with spreads rising by 2.9bps while JACI IG traded softer, rising 0.4bps. In China/HK yields broadly rose, with active names in the Chinese space such as CHIOLI 10/18 and HUWHY 9/19 while HK was led by the property names with familiar papers like SWIPRO 3/20 and WHARF 1/19. Over in the Singapore yields widened led by financial names such as OCBCSP 24c19 and UOBSP 24c19 trading wider by 4-6bps. Credit risks rose as the iTraxx AxJ jumped 3.5bps to 126.3. UST 10y yield inched up by 2.9bps to close at 2.649% yesterday resulting from the re-emergence of Ukraine geopolitical risk. Amid better than expected retail sales data announced yesterday (actual: +1.1%, expected: 0.9%), USTs are expected to gain.

¨      Bank of East Asia (BNKEA) issued a USD700m Reg S 3y senior (A2/NR/NR) with opening price of 2.375% (T+165bps). KT Corp, the Korean telecommunications company, has also issued a 3y (USD650m) and 5y tranche (USD350m) (Baa1/NR/NR) with an opening price of 1.75% (T+100bps) and 2.625% (T+110bps) respectively. TA Corp, which owns a chain of general merchandise discount stores in the US, has issued a SGD75m 2.5y Reg S (NR) at 5.25% (within preliminary guidance price of 5.5%).

TRADE IDEA

¨      MYR Trade Idea: We see value in ACSB 11/21 at 5.54% (last traded 13-Mar) which is trading at c.39bps (MGS+c.150bps) compared to our proprietary AA3 curve. Alpha Circle, which has the concession to implement the National Enforcement and Registration System (NERS) project, has revenues which are highly correlated to the volume of legal foreign workers in Malaysia. Alpha Circle saw its first full financial year in 2012 with revenue of MYR149m, on higher than projected initial foreign worker approval permits (12.7% above initial monthly projections). With GDP growth in Malaysia expected to be at the upper range of 4.5%-5.5% in 2014 (2013: 4.7%), we do not expect demand for foreign workers to taper off anytime soon. Even though its first year was in red with pre-tax loss of MYR1.7m, the sukuk has been structured to ensure that 80% of incoming revenue is prioritized for coupon and principal repayments, with sufficient buffer (up to 22%) of a decrease in projected revenue.

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