FW: RHB FIC Credit Market Update - 16/4/14

16 April 2014

Credit Market Update

MYR Activities Rose, Mixed Performance; APAC Softened Amidst Geopolitical Risks Headlines

MALAYSIA

¨      Activities rose, movements lack conviction; financial papers heavily traded. Market was more active yesterday as activities rose in both the MGS (volume: MYR1,166m; previous: MYR397m) and corporate bond space (volume: MYR344m; previous: MYR215m). In the corporate bond market, focus shifted from the AAA to AA space as financial papers stole the limelight. Nevertheless, investors remain cautious as mixed yield performance prevailed with a general sideways trend. In the financial space, CIMB Bank 12/20c15 traded 3bps wider to 4.98% while other segments saw SEB 6/26 trading 1bp wider to 5.28%.

REGIONAL

¨      APAC market traded softer; continued downward pressure on USTs from geopolitical uncertainty. JACI Composite marginally tightened by 0.3bps to 262.2 as the IG stayed unchanged while the HY saw heavier buying activity with spreads narrowing 3.9bps to 503.9. China space saw marginal yield broadening of up to c.2bps, with led by Finance & Logistics papers whereas HK saw keen interest in papers such as SWIPRO 3/20 (-0.2bps to 3.269%) and WHARF 1/19 (-1.2bps to 3.194%). BNKEA 4/17 opened and traded c.3bps tighter than reoffer. Over in Singapore, activity was centered on the financial space, with the recently launched OCBC 24c19 gaining traction narrowing 0.9bps to 3.973%. The UST rallied by 2bps to 2.6301% as continued geopolitical uncertainty could potentially keep UST yields at low levels while the US March retail sales data performed better than expected (actual +1.1%, expected: 0.9%).

¨      MIE Holdings issued a USD500m MIEHOL 5NC3 (NR/B+/B) at 7.5% inside initial guidance of 7.75% while Sri Rejeki Isman (B1/BB-/NR) sold a USD200m SRIRJK 4/19 at 9% (high end of initial price guidance). The Bank of Communications (Macau Branch) is issuing a USD 5y (NR/A-/A) with initial price guidance at T+200. This issuance is part of its USD1bn MTN programme.

TRADE IDEA

¨      MYR: Reiterate value in Nur Power 6/24 (AAAfg). We remain optimistic of Nur Power 6/24 (last traded yield on 3-Mar of 5.08%) with a potential pick-up value of 28-35bps relative to BNM’s indicative AAA curve. Its credit spread of MGS+c.97bps is generous versus BNM’s indicative credit spread of +65bps, placing it at a fair value of 4.73-4.80%. Further, we think a switch from Manjung 11/25 (last traded yield on 17-Mar of 4.92%) to Nur Power 6/24 in the same space provides a potential pick-up value of 16bps and shortens duration by 1y. The latter also comes with credit enhancer from Danajamin’s guarantee. On a standalone basis, we noted its long-tenured licence to generate, distribute and sell electricity to tenants of Kulim Hi-Tech Park (expiry: Sep-28) while mitigated by its customer concentration risk and the lack of flexibility for tariff adjustment.

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